Posted October 31, 2013 by PHaynes
Moments ago, the Department of Treasury issued a press release, IRS Notice 2013-71 and an informational fact sheet announcing a major policy change relating to Health Care Flexible Spending Accounts (HCFSAs) that has many positive implications for all HCFSA constituents – including administrators, employers and participants. The Department of Treasury has modified its HCFSA “use-it-or-lose-it” provision to allow a limited rollover of HCFSA funds.
Details are as follows:
- Effective in plan year 2014, employers that offer HCFSA programs will have the option of allowing participants to roll over up to $500 of unused funds at the end of the plan year.
- Effective immediately, employers that offer HCFSA programs that do not include a grace period will have the option of allowing employees to roll over up to $500 of unused funds at the end of the current 2013 plan year. Grace periods are used by plans when they want to give you an additional 2.5 months to incur claims. Grace periods are not “runnout” or “submission deadline” periods.
For several years, AP Benefit Advisors, LLC and its vendor partners have been deeply involved in industry efforts to educate and convince policymakers to adopt this major new feature for HCFSAs. We are thrilled that these efforts have borne fruit – and believe that this is fantastic news for all HCFSA stakeholders.
From our perspective, the major benefits of this new “rollover” provision include:
- Eliminating the most significant impediment to HCFSA adoption (use-it-or-lose-it) – creating significant upside for FSA adoption growth, which has been limited over the past several years.
- Enhancing healthcare options and offering greater funds protection for HCFSA participants, particularly lower & middle income workers who are highly concerned about cash flow.
- Minimizing risk for constituents with unpredictable healthcare expenses, such as those dealing with chronic conditions that may necessitate high-cost procedures/services with ambiguous timing or medical necessity.
- Curbing wasteful & potentially unnecessary end-of- year spending by HCFSA participants seeking to avoid losing unused funds.
Again, remember these are optional changes and must be adopted by your plan prior to the end of the plan year in question. Please contact your Sales Executive or Account Manager to discuss this.
Posted October 31, 2013 by PHaynes
IRS Announces 2014 Pension Plan Limitations; Taxpayers May Contribute up to $17,500 to their 401(k) plans in 2014
WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2014. Some pension limitations such as those governing 401(k) plans and IRAs will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment. However, other pension plan limitations will increase for 2014. Highlights include the following:
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
- The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.
- The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
- The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000 in 2013. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
- The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
- The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.
Below are details on both the unchanged and adjusted limitations.
- Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.
- Effective January 1, 2014, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $205,000 to $210,000. For a participant who separated from service before January 1, 2014, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2013, by 1.0155.
- The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2014 from $51,000 to $52,000.
- The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2014 are as follows:
- The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $17,500.
- The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $255,000 to $260,000.
- The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $165,000 to $170,000.
- The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $1,035,000 to $1,050,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $205,000 to $210,000.
- The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $115,000.
- The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.
- The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $380,000 to $385,000.
- The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550.
- The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,000.
- The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $17,500.
- The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $100,000 to $105,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $205,000 to $210,000.
The Code (via IRS Notice 2013-35) also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2014 are as follows:
- The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $35,500 to $36,000; the limitation under Section 25B(b)(1)(B) is increased from $38,500 to $39,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $59,000 to $60,000.
- The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $26,625 to $27,000; the limitation under Section 25B(b)(1)(B) is increased from $28,875 to $29,250; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $44,250 to $45,000.
- The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $17,750 to $18,000; the limitation under Section 25B(b)(1)(B) is increased from $19,250 to $19,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $29,500 to $30,000.
- The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.
- The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $95,000 to $96,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $59,000 to $60,000. The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $178,000 to $181,000.
- The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $178,000 to $181,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $112,000 to $114,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.
- The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,066,000 to $1,084,000.
Posted October 31, 2013 by Megan DiMartino
Earnings up to $117,000 hit by Social Security FICA tax; more will face Additional Medicare Tax
10/30/2013 By Stephen Miller, CEBS
While the typical U.S. employee may expect to earn a bit more in 2014, high earners will find that more of their salary is subject to Social Security payroll taxes. And since income thresholds are not inflation adjusted for the Additional Medicare Tax on high earners, more employees will pay this extra levy as well.
On Oct. 30, 2013, the Social Security Administration (SSA) announced that the maximum amount of earnings subject to the Social Security payroll tax will increase to $117,000 from $113,700, beginning Jan. 1, 2014. Of the estimated 165 million U.S. workers who will pay Social Security payroll taxes in 2014, about 10 million will pay a higher amount as a result of the inflation-based increase in wages subject to Social Security withholding.
Social Security and Medicare payroll withholding are collected together as the Federal Insurance Contributions Act (FICA) tax.
By Jan. 1, U.S. employers should:
- Adjust their payroll systems to account for the higher taxable maximum under the Social Security portion of FICA.
- Notify affected employees that more of their paychecks will be subject to FICA.
Withholding Rates Unchanged
The portion of the Social Security FICA tax that employees pay remains unchanged at the 6.2 percent withholding rate. Correspondingly, the portion of the tax that employers cover also remains at 6.2 percent of employee wages. This amounts to a total Social Security FICA tax of 12.4 percent.
These rates are set by statute and are not adjusted annually based on inflation. Except for a temporary 2 percent cut in the employee portion of the Social Security payroll-tax rate, which took effect in 2011 and ended in January 2013, they have been in place since 1990.
The IRS will issue payroll withholding tables for 2014, which will be available at www.IRS.gov.
In 2014, with the higher income ceiling, the maximum yearly Social Security tax withholding amount rises to $7,254 (6.2 percent withholding on earnings of up to $117,000), up from $7,049.40 (6.2 percent withholding on earnings of up to $113,700).
For most Americans, the Medicare portion of the FICA tax remains at 2.9 percent, of which half (1.45 percent) is paid by employees and half by employers. Unlike Society Security, there is no limit on the amount of wages subject to the Medicare portion of the tax. This results in a total FICA tax for most wage earners of 15.3 percent (Social Security plus Medicare), half of which is paid by employees and half by employers.
Self-employed individuals are responsible for the entire FICA tax rate of 15.3 percent (12.4 percent Social Security plus 2.9 percent Medicare).
For high earners, Medicare takes a somewhat larger bite, under a provision of the Patient Protection and Affordable Care Act. Beginning in 2013, the employee-paid portion of the Medicare FICA tax became subject to the 0.9 percent Additional Medicare Tax. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for single and all other taxpayers. These wage thresholds are not inflation adjusted, and thus apply to more employees each year.
An employer must withhold the Additional Medicare Tax from the wages or compensation it pays to an employee in excess of $200,000 in a calendar year.
The Additional Medicare Tax raised the individual wage earner’s portion on compensation above the threshold amounts to 2.35 percent from 1.45 percent; the employer-paid portion of the Medicare tax on these amounts remained at 1.45 percent.
Benefits Adjust, Too
The SSA also announced that the annual cost-of-living adjustment (COLA) for monthly Social Security and Supplemental Security Income benefits paid to nearly 63 million Americans will increase 1.5 percent in 2014, slightly less than the 1.7 percent COLA that took effect in 2013.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Posted October 28, 2013 by PHaynes
Self-insured employers and self-administered health plans are about to catch a break, thanks to fine-tuning of the Patient Protection and Affordable Care Act by the Departmentof Health and Human Services.
In a soon-to-be-published compendium of rule modifications, HHS says it will exempt certain self-insured employers from the second two years of paying the reinsurance fee.
HHS says the proposed modifications — of which there are quite a few — are the result of its “listening” sessions with interested parties about specific requirements of the act. The full list can be found in the proposal, “Program Integrity: Exchange, Premium Stabilization Programs, and Market Standards; Amendmentsto the HHS Notice of Benefit and Payment Parameters for 2014.”
HHS doesn’t offer a whole of detail on the exemption matter. It says in order to address employer feedback that the fees are burdensome, it will accept payment of the fee in two chunks instead of one (at the beginning of 2014 and at the end of the year) and will “exempt certain self-insured, self-administered plans from the requirement to make reinsurance contributions for the 2015 and 2016 benefit years” in future rulemaking and/or guidance proposals.
However, all employers will be required to pay the first-year fee for the program, which begins in 2014.
The 2014 fee for the three-year Transitional Reinsurance Program was set at $63 per plan participant. Fee levels have not been set for 2015 and 2016.
The fees are designed to yield $25 billion over the three-year program – money that would help offset costs incurred by insurers covering high-cost individuals purchasing coverage in public insurance exchanges.
HHS’s missive addressed other matters, including what happens when a small company buys small group insurance, and then it becomes a large company. The employer can keep the small group insurance package as long as it doesn’t make substantial modifications to it. But if discontinues small group coverage, it will then have to purchase insurance through the large group exchanges.
HHS also promised to provide further guidance on the sticky issue of what constitutes a full-time employee for purposes of the all-important employee head count.
The proposals are scheduled to be published in the Federal Register on Wednesday (10/30/2013).
- See, E.g. Letter “P” under 2014, here: Employer Timeline, Version 11 (a decade of health reform on 1 page)
- HHS Guidance New PPACA $63 Per Head Fee (Original update from 12/13/2012)
Posted October 24, 2013 by Megan DiMartino
The Patient Protection and Affordable Care Act has proven one of the largest and most complex legislative undertakings in our nation’s history. Given the depth and complexity of the healthcare system, this surprises few people. Yet the ramifications of these legislative changes are constantly rediscovered and reevaluated as additional pieces of the puzzle fall into place. Failing to comply can cost companies millions and hurt employee morale. Stay abreast of the latest issues and updates with AP Benefit Advisors:
- Exchange Premiums Released by HHS – Average 62% Increase for Women and 99% for Men
- IRS Employment Tax Overpayment Procedural Revisions and Post-Windsor Guidance
- Mitigating FAS 106 and COBRA Liabilities and Costs Through Private and Public Exchanges
Posted October 21, 2013 by PHaynes
Same-sex weddings have begun in New Jersey, which has become the 14th state to recognize nuptials between gay partners. Weddings were held in several cities and towns across the state in the first minutes of Monday morning, as soon as a court order requiring the state to recognize gay marriage went into effect.
Later in the morning, New Jersey Governor Chris Christie ordered his administration to withdraw an appeal of a state Supreme Court ruling allowing gay marriages.
“Although the Governor strongly disagrees with the Court substituting its judgment for the constitutional process of the elected branches or a vote of the people, the Court has now spoken clearly as to their view of the New Jersey Constitution and, therefore, same-sex marriage is the law,” the Christie administration said in a statement. “The Governor will do his constitutional duty and ensure his Administration enforces the law as dictated by the New Jersey Supreme Court.”
In Newark, Mayor and U.S. Senator-elect Cory Booker choked up as he led the ceremony for seven gay couples, telling the audience, “This is very beautiful.” The weddings there and elsewhere went ahead after the state Supreme Court on Friday denied Gov. Chris Christie’s request to delay the date when a lower court mandated gay marriage be legalized.
- Prior News Article, June 26, 2013: DOMA Unconstitutional: What’s Next for my Employee Benefit Plans?
- The Washington Post’s US Map: Same-Sex Marriage Status in the US (will show NJ too, once the Washington Post updates their site).
Hawaii and Illinois have passed legislation authorizing marriage by same-sex couples, and Oregon—which constitutionally bans same-sex marriage—has announced that it will nevertheless recognize same-sex marriages legally performed in other jurisdictions. The Hawaii law takes effect December 2, 2013, while the Illinois law takes effect no later than June 1, 2014.
Posted October 18, 2013 by Megan DiMartino
PPACA has presented interesting opportunities for employers who have promised healthcare benefits to retirees under the age of 65. In December 1990, The Financial Accounting Standards Board (FASB) changed the practice of accounting for post-retirement benefits on a pay-as-you-go (cash) basis by requiring accrual accounting of the expected cost of providing those benefits during the years that the employee renders service. This has historically been a very expensive benefit which has negative balance sheet implications due to FAS 106.
Since 1986, employers have been required to offer continuation of coverage to qualified beneficiaries. Those electing coverage typically do so because they need it. Hence COBRA coverage is a very expensive requirement for employers. Join attorney Patrick Haynes for this important webinar as he discusses the following topics:
* PPACA, FAS 106 and COBRA
* Alternatives to traditional retirement benefits and COBRA coverage
* Public exchanges and impact on retirement benefits and COBRA
* Defined Contribution Plans and PPACA
Open to all Benefits Professionals – but not other agents and brokers.
Space is limited. To reserve yours, register here.
Posted October 1, 2013 by Megan DiMartino
The IRS has issued simplified procedures that employers may use to correct employment tax (FICA and federal income tax withholding) overpayments for 2013 and prior years resulting from the change in tax treatment for health and certain other benefits provided to employees’ same-sex spouses due to the Supreme Court’s partial invalidation of DOMA in the Windsor decision. These optional procedures, which are intended to reduce the filing and reporting burdens associated with retroactive correction, follow up on earlier post-Windsor guidance announcing that the IRS will recognize for federal tax purposes all legal same-sex marriages, even if a couple resides in a state that does not recognize same-sex marriage. As background, employment taxes are reported quarterly on Form 941. Overpayments are normally corrected by taking a credit against taxes due in a later quarter (or, in some cases, claiming a refund) and filing Form 941-X for each quarter being corrected. If the overpayment includes excess amounts withheld from employees’ wages, the employer generally must repay the excess withholding to the employees before claiming an adjustment. The correction deadline is the later of three years after the filing date for the Form 941 being adjusted or two years from the date the taxes were paid.
The simplified procedures apply to overpayments with respect to same-sex spouse benefits that were treated as taxable to employees and after-tax employee contributions for same-sex spouse health coverage from employees who also made pre-tax elections for health coverage under a cafeteria plan. The available procedures are—
- Correction Within Third Quarter. For overpayments relating to the third quarter of 2013, an employer may adjust within this quarter without making any special filing, provided any amounts required to be returned to employees are repaid by September 30.
- Other Adjustments for 2013. Two alternatives are available for employers that overpaid taxes during the first three quarters of 2013.
- If any over-withholding is repaid to employees by December 31, 2013, the employer can use its fourth quarter Form 941 to correct overpayments for all of 2013—avoiding the need to file separate Forms 941-X for the prior three quarters.
- If the employer does not repay the over-withholding to employees by December 31 (and, consequently, does not use the fourth quarter Form 941 to correct 2013 overpayments), the employer can make adjustments by filing a single Form 941-X for the fourth quarter to correct overpayments for all of 2013. This alternative applies only to FICA tax, since over-withholding of income tax not repaid by December 31 will have to be adjusted by employees on their individual tax returns.
- Adjustments Before 2013. The employer may file a Form 941-X for the fourth quarter of any prior year for which the correction period has not expired, and that single form will apply to all four quarters of that year. Forms W-2c for the adjusted years must be filed to correct information previously reported on Forms W-2. Again, this alternative does not apply to over-withheld income tax, since those adjustments will be made by employees (using information on the Form W-2c) on their individual tax returns.
While employers are likely to welcome the simplification provided by these procedures—but they can use the regular procedures instead if they choose. Either way, employers should consider the options, taking into account the various deadlines.