COBRA Subsidy Eligibility Period Extended to May 31

From the IRS:

Workers who lose their jobs during April and May may qualify for a 65-percent subsidy on their COBRA health insurance premiums, according to the Internal Revenue Service. The American Recovery and Reinvestment Act established this subsidy to help workers who lost their jobs as a result of the recession maintain their employer sponsored health insurance.
The Continuing Extension Act of 2010, enacted April 15, reinstated the COBRA subsidy, which had expired on March 31. As a result, workers who are involuntarily terminated from employment between Sept. 1, 2008 and May 31, 2010, may be eligible for a 65-percent subsidy of their COBRA premiums for a period of up to 15 months. In some cases, workers who had their hours reduced and later lose their jobs may also be eligible for the subsidy.
Employers must provide COBRA coverage to eligible individuals who pay 35 percent of the COBRA premium. Employers are reimbursed for the other 65 percent by claiming a credit for the subsidy on their payroll tax returns: Form 941, Employers QUARTERLY Federal Tax Return, Form 944, Employer’s ANNUAL Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees. Employers must maintain supporting documentation for the claimed credit.
There is much more information about the COBRA subsidy, including questions and answers for employers, and for employees or former employees, on the COBRA pages of IRS.gov.
Some people who are eligible for the COBRA subsidy also qualify for the health coverage tax credit (HCTC) and may want to choose the more generous HCTC benefit, instead. The HCTC pays 80 percent of health insurance premiums for those who qualify. See more at HCTC: Eligibility Requirements and How to Receive the HCTC.

Health Care Tax Credit

Millions of small businesses have begun receiving postcards from the IRS alerting them to the new Small Business Health Care Tax Credit and encourage them to check their eligibility. The IRS provides a fact sheet to determine whether a business qualifies. The IRS also provides answers to Frequently Asked Questions. Key provisions of the credit are as follows: Eligibility Rules

• Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
• Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
• Average annual wage. A qualifying employer must pay average annual wages below $50,000.
• Both taxable (for profit) and tax-exempt firms qualify.

Amount of Credit

• Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
• Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

Union Retiree Health Benefits

I recently read the summary below about union retirees health benefits and thought it would be good information for our union contractor clients. The short story is that retiring union members can maintain their health insurance benefit even if they elect to take the lump sum retirement distribution. For more details read the following. Battoni v IBEW Local Union No. 102 Employee Pension Plan (2010, CA3) 2010 WL 395823 An amendment to a union welfare plan, which conditioned receipt of retiree health care benefits upon the retirees' not choosing the lump sum offered under the union pension plan, was a constructive amendment of the pension plan. And since the amendment decreased the value of the lump-sum benefit in violation of the anti-cutback rules, the amendment was prohibited. Facts. A merger of two International Brotherhood of Electrical Workers local unions effectively dissolved Local 675 and transferred its members to Local 102. The merger also combined the locals' two pension plans into a single Local 102 Pension Plan. To accommodate Local 675 members whose former plan had allowed them to choose between a lump-sum pension benefit or a periodic monthly pension benefit, the revised Local 102 plan allowed former Local 675 members to receive a lump-sum benefit for pre-merger accruals. As another result of the merger, two welfare plans were combined by moving Local 675 members to the Local 102 Welfare Plan, which, among other things, provided eligible retirees with health care benefits for themselves and their spouses. Shortly after the merger, the Local 102 plan was amended to add an additional condition regarding eligibility for retiree health care. Specifically, the amendment conditioned receipt of health benefits on the retirees' not choosing the lump-sum benefit offered under the pension plan. A group of current and retired Local 102 members who had been members of Local 675, challenged the amendment. They argued that the amendment violated ERISA § 204(g) 's anti-cutback rule which prohibits reducing a participant's accrued benefit (with certain exceptions not relevant here) by plan amendment. While acknowledging that the lump-sum pension benefit was an accrued benefit under ERISA, the union argued that the amendment was an amendment of a welfare plan and that welfare plans are exempt from coverage under the anti-cutback rule. However, the district court ruled in favor of the union members, finding that the amendment did violate the rule. The union appealed to the Third Circuit. Court finds an amendment to the pension plan. The Third Circuit first decided that the welfare plan amendment constructively constituted an amendment of the pension plan. While acknowledging a “certain superficial appeal” to the union's argument that the pension plan had not been amended, the view of what constitutes an “amendment” to a pension plan has been construed broadly to protect pension recipients, the court noted. Accordingly, even though welfare and pension plans serve different purposes under ERISA's scheme, it is the meaning and function of an amendment that determines whether the amendment modifies a pension plan, a welfare plan, or both. Here the court found that the amendment was part of the welfare plan to the extent that it pertained to welfare benefits, and part of the pension plan to the extent the amendment pertained to pension benefits. The amendment constructively amended the pension plan by adding a condition to the receipt of a benefit accrued under that plan, the court said. Assuming, hypothetically, that the pension plan did not exist, the amendment would have no meaning; however, if the amended provision were added to the pension plan, it would retain the exact same meaning and function. Thus, while the amendment was added to the welfare plan and dealt with health care benefits, the amendment also functioned to condition receipt of the lump-sum pension benefit, the court determined. Amendment decreased an accrued benefit. Having determined that there was an amendment of the pension plan, the Third Circuit had to address whether the amendment decreased an accrued benefit. The court noted that in Central Laborers' Pension Fund v. Thomas E. Heinz, et al, (S Ct 6/7/2004) 94 AFTR 2d 2004-5071 ( Weekly Alert ¶ 2 06/10/2004 ), the Supreme Court ruled, among other things, that at the moment a new condition is imposed, an accrued benefit becomes less valuable. The same reasoning applied to this case, the Third Circuit said. The Local 102 Pension Plan imposed a new condition on the receipt of an accrued benefit because previously, the lump-sum pension benefits accrued before the amendment was added to the welfare plan, but after the amendment, receipt of those same accrued benefits was conditioned on forfeiting health care benefits. Thus, this new condition in and of itself, decreased the value of the lump-sum pension benefit, the court held. Similarly, IRS regs supported the union members' position. Reg. § 1.411(d)-3(a)(2)(i) states that the anti-cutback rule is to be construed broadly to cover both direct and indirect amendments to pension plans, and Reg. § 1.411(d)-4, Q&A 7 provides that the imposition of conditions on accrued benefits violates the anti-cutback rule. Relying on both Supreme Court precedent and IRS regs, the Third Circuit concluded that by imposing a condition on the receipt of the lump-sump benefit, the amendment decreased an accrued benefit, and was thus prohibited. References: For the anti-cutback rules, see FTC 2d/FIN ¶ H-7300 ; United States Tax Reporter ¶ 4114.45 ; TaxDesk ¶ 286,018 ; TG ¶ 8093 .

10 Questions if Current Health Care Legislation is Passed

The attorneys at Litter law firm give their suggested Top 10 questions employers should ask if the current health care bill is finalized. Here's a summary of their Top 10 Questions: 1. Do we have to provide health care benefits to our employees?

Answer: Yes, if you want to avoid paying a penalty.

2. Do we have to pay a penalty if our employees decide to drop out of the employer sponsored plan?

Answer: Yes, in certain circumstances.

3. Can we provide our employee’s health insurance through the health insurance exchange?

Answer: Initially, smaller employers would be able to offer health insurance through the exchange once the exchange becomes operational in 2013 under the House bill and in 2014 under the Senate bill. Larger employers may eventually be able to do so as well.

4. Do we have to change our benefit plan?

Answer: Yes, if it does not comply with certain new requirements.

5. What is a “Cadillac” plan?

Answer: If you offer a high-premium health insurance plan to your workers, you may be subject to a new excise tax on these so-called “Cadillac” plans.

To help pay for the cost of expanding health care coverage, the Senate bill would, beginning in 2013, impose a 40% excise tax on employment-based health plans whose premiums exceed $8,500 for singles and $23,000 for family plans, indexed for inflation plus 1%.

6. Will health insurance plans be taxed?

Answer: Yes, both the House and Senate bills would impose a new premium tax on group health plans to fund comparative effectiveness research. Annual fees on health insurers and device manufacturers may also be passed on to employers.

7. What is a medical loss ratio and why should employers care?

Answer: A medical loss ratio is the percentage of health insurance premium revenues that must be spent on clinical services and quality.

8. Can we change our retiree health benefits?

Answer: The House bill significantly restricts the ability of employers to change retiree health benefits, while the Senate bill does not.

9. What happens to Flexible Spending Accounts?

Answer: Employers who offer flexible spending accounts (FSAs) and workers who utilize them would face new contribution limits under both the House and Senate bills.

10. Will this reduce our health care costs?

Answer:The ultimate question for employers is whether or not the current health care legislation will, in fact, bend the cost-curve or, in other words, reduce employers’ ever-increasing health care costs. For employers grappling with the impact of rising health care costs in the competitive global economy, the answer is far from certain.

For more information on each question, you may visit the full article. (via CPA Trendlines)

IRS releases Retirement Plan Navigator

WebCPA reports:

The Internal Revenue Service has created a new Web-based tool to help small-business owners determine which tax-favored pension plan best suits their needs and how to keep their plans in compliance. The IRS Retirement Plan Navigator aims to provide employers with an online guide for choosing, maintaining and correcting a plan. The navigator does not suggest which plan may be best for a specific employer, but instead lays out the options to allow small-business owners to choose a plan that best fits their situation. Options include 401(k) plans, plans with individual retirement accounts, defined-benefit plans and tax-exempt plans. The navigator includes a side-by-side comparison of the various types of pension plans and their requirements. The navigator also provides a checklist and suggested resources for maintaining compliance. It offers suggested options to employers seeking to correct errors and bring their plans back into compliance.

If you are interested in more information on retirement for you or your employees, you may want to give this new tool a try.

HSA amounts for 2010

The IRS released the following inflation-adjusted amounts related to Health Savings Accounts (HSAs) for 2010:

	Self-only coverage	Family coverage
Maximum contribution	$3,050	$6,150
Minimum deductible	$1,200	$2,400
Maximum out-of-pocket	$5,950	$11,900

Help meeting new COBRA requirements

The Department of Labor has published model notices to help plans and individuals comply with the new COBRA requirements of the recent economic stimulus package.

By April 18, an employer must send a "Notice in Connection with Extended Election Periods" to any eligible individual who:

• Had a qualifying event (more info here) at any time from September 1, 2008 through February 16, 2009; and
• Either did not elect COBRA continuation coverage, or who elected it but subsequently discontinued COBRA.

More Info on New COBRA Rules

The US Department of Labor (DOL) has published guidance and resources on the new law, which provides for a 65% reduction in COBRA premiums for certain eligible individuals for up to 9 months. For FAQs for employers, employees, fact sheets, and other resources from the DOL, please visit: http://www.dol.gov/ebsa/COBRA.html

New Rule for COBRA Health Insurance

The 2009 Tax Act made changes to the health benefit provisions of COBRA. Eligible former employees who were enrolled in their employer's health plan when they lost their job need only pay 35% of the cost of COBRA coverage, while employers are entitled to a credit for the other 65% of the COBRA cost on their payroll tax return. The IRS posted guidance, including questions and answers for employers, at www.irs.gov/newsroom/article/0,,id=204505,00.html.