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IRS Issues Notice on Employer Payment Plan; DOL Issues Same-sex FMLA Regulations

Tuesday February 24th 2015

What seems right one day, may be wrong the next.  If you answered a question early last week regarding employer payment plans or whether a legal same-sex spouse is recognized under FMLA, your answer could be different today.

On February 18, 2015, the IRS released Notice 2015-17 that addressed five outstanding issues regarding employer payment plans (EPP) and that provided limited transitional relief for small employers who currently reimburse employees for individual health insurance premiums.

Notice 2015-17 repeats a cautionary tale:  Be grateful for the guidance and clarification, but don’t push the limits of what was intended.  These answers are needed, but some vendors might still wish to believe they apply more broadly than intended.  Be cautious with solutions that seem too good to be true.  The agencies (IRS, DOL, HHS) with the most guidance surrounding reimbursement of individual premiums have considered them EPPs. These EPPs are considered group health plans when there is more than one eligible employee entitled to reimbursement.  ACA’s market reforms apply to these group health plans.

  • Transitional relief is offered to employers who aren’t applicable large employers (ALEs) for 2014 and 2015 through June 30, 2015. This will allow these employers to end their EPPs and move to group health plans that meet the ACA’s market reforms.
  • This relief was not provided for applicable large employers (ALEs 50+), and the $100 per day, per employee penalties still apply. These ALEs must self-report their violation on the IRS’ excise tax Form 8928 quarterly.
  • 2% shareholders or more of an “S” corporation may be reimbursed for their individual health insurance premiums.  The tax law treats that as imputed income for the shareholder.  They can also deduct 100% of those costs from their income taxes.
  • Employers may increase an employee’s compensation.  What you can’t do in this instance is tell employees that they have to use the additional wages to purchase health insurance.
  • Bonus:  Medicare-related or TRICARE supplemental premiums were also addressed. These are permissible as long as the employer offers a group health plan (not EPPs) and that plan offers more than excepted benefits and meets minimum value.
    • Medicare/TRICARE reimbursement can be offered to employees enrolled in Part A, B, D and/or TRICARE.  The employee must also be reimbursed only if they’re enrolled in these plans.  The EPPs limits the reimbursement of Medicare Part B, D premiums and excepted benefits, including Medigap premiums (or TRICARE supplemental plans).

FMLA

On February 23, 2015, the DOL announced a rule change to the FMLA in keeping with the U.S. Supreme Court ruling in United States v. Windsor.  That ruling struck down the federal Defense of Marriage Act provision that interpreted marriage and spouse to be limited to opposite-sex marriage for the purposes of federal law.

Effective March 27, 2015, the rule change updates the FMLA regulatory definition of spouse so an eligible employee in a legal same-sex marriage will be able to take FMLA leave for his or her spouse regardless of the state in which the employee resides. Previously, the regulatory definition of spouse did not include same-sex spouses if an employee resided in a state that did not recognize the employee’s same-sex marriage. Under the new rule, eligibility for federal FMLA protections is based on the law of the place where the marriage was entered into. This place of celebration provision allows all legally married couples, whether opposite sex or same sex, to have consistent federal family leave rights regardless of whether the state in which they currently reside recognizes such marriages.

 

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