From ChamberChoice and Small Business Pittsburgh

There are numerous employee benefits laws requiring compliance. Staying on top of compliance can be daunting, and it’s easy for something to fall through the cracks.

As you gear up for the New Year, take some time to review the pitfalls of employee benefits plan administration.

Smart Business spoke with Frances Horn, employee benefits compliance officer at JRG Advisors, about what to watch for with employee benefits compliance.

What’s the first step to compliance?
As employers gear up for 2018, they need to set some time aside to review their employee benefits plan administration. An employer may not be subject to every law, due to size or type of benefit offered, but no employer is not subject to any of the laws.

The major laws are the Employee Retirement Income Security Act of 1974 (ERISA), Consolidated Omnibus Budget Reconciliation Act (COBRA), Health Insurance Portability and Accountability Act of 1996 (HIPAA), Internal Revenue Code (IRC) Section 125, Family and Medical Leave Act of 1993, Medicare and the Affordable Care Act, with many having several compliance provisions.

How is failing to properly communicate with the plan participants a pitfall?
Under ERISA, plan administrators have disclosure and reporting requirements. Every plan may not be subject to these requirements, due to size or type of plan funding, but every plan subject to ERISA has disclosure or communicating requirements, such as distribution of a Summary Plan Description, Summary of Benefits and Coverage and numerous other notices.

Under COBRA, many administrators don’t recognize that there are several more notices required than just an election notice. These include, but are not limited to, an initial notice, notice of early termination and notice of unavailability of COBRA coverage. 

Other communications that remain the plan administrator’s responsibility are the Medicare Part D notice, HIPAA Special Enrollment Rights, Women’s Health and Cancer Rights Act notice and the Children’s Health Insurance Program Reauthorization Act of 2009 notice.

Where else do employers go wrong with plan administration?
Understanding who is actually the plan administrator can be another pitfall. With most laws governing employee benefits plans, the responsibility for compliance rests with the plan administrator, which is the person usually designated in the plan documents. If no such designation exists, the administrator role defaults to the plan sponsor, i.e. the employer.

While the plan administrator is responsible for disclosures to participants, plan document preparation and penalties for any noncompliance, many employers incorrectly feel these requirements fall with either the insurer or the insurance broker. Even for a self-insured plan, the third party administrator rarely agrees to be the plan administrator, but may assist with an employer’s documentation responsibility.

The pre-taxing of an employee’s premium contribution share is another pitfall. Many employers require that employees pay a portion of the premiums, particularly medical, dental and vision insurance coverage. To assist employees with these contributions, an employer will take the premium out of an employee’s compensation before applying taxes, thus the term pretax. An employee’s taxable wages for the Federal Insurance Contributions Act, federal withholding and state withholding are then reduced. This practice is often referred to as being a tax-favored treatment for employees.

The capability to pre-tax benefits comes under Section 125 of the IRC. The code requires that an employer establish its pretax plan, often referred to as a cafeteria plan, Section 125 plan or a premium-only-plan, in writing. Not meeting this requirement means a Section 125 plan doesn’t exist and that the employer is more than likely improperly taxing its employees’ benefits.

Numerous laws govern employee benefit plans. Ultimately the employer is responsible for complying with these laws and can be subject to costly penalties for noncompliance. As the year draws to a close, employers should review the governance of their benefits plans and determine if they need assistance to climb out of any pitfalls.

From PA Chamber of Business & Industry

The week prior to Christmas was an important one – not only in the world of politics, but for employers and workers across the nation. Congress passed a sweeping tax reform measure, the Tax Cuts & Jobs Act, that makes the first substantial changes to America’s tax code since 1986.

This is great news for our country in terms of our future prospects for economic growth. The soon-to-be-new law – which awaits the president’s signature – aims to simplify the Tax Code, making it easier to understand and comply with (which means less time that business owners have to take out of their day filing company taxes). Also included are provisions to lower the federal corporate tax rate to a far more competitive 21 percent and move to a territorial tax system so that businesses are only taxed on income earned within the U.S.’s borders, among other pro-growth changes.

These changes have been a long time coming. It’s hard to believe that 31 years had passed since any meaningful reforms had been made to what business leaders around the world had long called, onerous and uncompetitive tax code; and nearly unfathomable to conceive of the billions of dollars our economy must have lost out on over the decades to countries with better business climates.

With these tax reforms in place, it’s not only large businesses who will see economic opportunities skyrocket, but small ones too – all of which means more jobs, lower taxes and bigger paychecks for American families. This includes relief for small businesses who would benefit from a new, lower tax rate up to a certain level of their net business income and lower taxes on small business investment.

Right out of the gate, the U.S. Chamber championed the legislation due to the far-reaching positive implications it promised for our economy and America’s future competitiveness; and led a broad-based coalition of business advocates (including the PA Chamber) in supporting its passage in Congress. During the course of negotiations, our organization signed letters to federal lawmakers, and had this opinion editorial published in several news outlets statewide to make the case for long overdue federal tax reform. It’s been more than three decades since 1986 – and it was long past time for this great country to adopt the types of reforms that will now lead to the strong economy our hard-working population deserves.

You can learn more about how federal tax reform will impact Pennsylvania at www.TaxReformforAmerica.com.

From ChamberChoice

As the year begins to wind down, employers should remember to have on their “to do” list a review of any benefits which need to be reported as imputed income. In general, the benefits that an employer provides to its employees are excluded from an employee’s taxable income. However, for employer-sponsored group term life insurance, there are some exceptions to this taxability exclusion.

The Internal Revenue Code (IRC) details the tax implications for employer-sponsored group term life insurance, excluding the cost of the first $50,000 in employer provided coverage. The cost of any excess coverage is subject to federal income and FICA (Social Security and Medicare) taxes. “Cost” as referred to here does not mean the premium paid by the employer but the cost determined under the IRC’s Table I rates [at right]. The “cost” of the coverage added to an employee’s gross income is commonly referred to as “imputed income.” The “cost” is usually included in one of the employee’s last paychecks for the year. The employer withholds the employee’s portion of FICA taxes and pays its FICA share. This information is also reported on the employee’s W-2.

There are several other instances, besides the employer provided coverage exceeding a benefit in the amount of $50,000, which would require additional taxable income to the employee.

Employer-sponsored voluntary life coverage. If an employee is paying the entire cost of the life coverage on an after-tax basis, the coverage may still be considered partly-employer provided. This would occur if an employee’s post-tax contributions are less than the value of the excess coverage calculated using the IRS’ table of rates.

Employer-sponsored voluntary life insurance paid for with pre-tax dollars under a Section 125 plan. If an employee pays for coverage using pre-tax dollars, the coverage is treated, for tax purposes, as if the employer paid those premiums. Thus, the costs for any amounts that exceed $50,000 must be included as income.

Employers must include in their employees’ wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance on an after-tax basis. The $50,000 includes any employer provided group term life benefit and any pre-tax life coverage for which the employee pays.

Also, remember to review any dependent life insurance coverage offered. Many employers are under the assumption that life insurance provided for dependents is taxed in the same manner as employee life insurance. It is not. Employer-provided dependent life insurance is taxable unless the amount of the insurance is less than $2,000. For coverage exceeding $2,000 the full amount of the dependent life insurance is taxable, including the first $2,000.

As employers begin to review information for its employees’ W-2s it should remember to consider imputed income for excess life insurance. An employer should address any concerns regarding group-term life insurance and imputed income with its tax advisor.