Year-End Employee Benefits Round-Up

December 18, 2012

As 2012 comes to a close, plan sponsors may wish to review their employee benefit plans and programs and consider various new rules that take effect in 2013.  This year, the biggest concerns arise out of the Patient Protection and Affordable Care Act and its companion law, the Health Care and Education Reconciliation Act (jointly, “the Health Care Reform Acts”).

The summary below highlights a number of today’s important benefits issues and the related 2013 deadlines.

Health Care Plans

New W-2 Reporting Requirements

Under the Health Care Reform Acts, an employer that provides “applicable employer sponsored health coverage” (see below) and that prepares more than 250 Forms W-2 must report the total cost of the health coverage on employees’ Forms W-2.  The first year for which this requirement is in effect is 2012. Thus, Forms W-2 issued to employees in January 2013 must report the cost of health coverage.

The new W-2 reporting requirement applies not only to private employers, but also to federal, state, and local government entities, churches and other religious organizations, and employers that are not subject to the COBRA continuation requirements.

The cost of applicable employer-sponsored health coverage is to be reported in Box 12 of Form W-2, using code DD.  The “cost of coverage” reported on Form W-2 should include both the portion paid by the employer and the portion paid by the employee.

The following should not be counted as part of the cost of coverage:  contributions to health savings accounts (HSAs) of an employee or employee’s spouse, contributions to a health reimbursement arrangement (HRA), salary reduction contributions to a health flexible spending arrangement (health FSA), or contributions to an Archer medical savings account (MSA).

The IRS emphasizes that the amount reported on Form W-2 does not affect tax liability.  The reporting is for informational purposes only, to show employees the value of their health care benefits so that they can be more informed consumers.
Applicable employer-sponsored health coverage does not include:

  • long-term care insurance,
  • limited-scope dental or vision care provided under a separate policy,
  • coverage for a specific disease or illness,
  • hospital indemnity coverage or other fixed indemnity insurance, or
  • “excepted benefits.”

Excepted benefits are accident or disability income insurance, liability insurance, coverage issued as a supplement to liability insurance, workers’ compensation or similar insurance, automobile medical payment insurance, credit-only insurance, and other, similar insurance coverage under which benefits for medical care are secondary or incidental.

Nondiscrimination Rules for Fully Insured Health Plans
Before the Health Care Reform Acts were passed, fully insured health plans were not prohibited from discriminating in favor of highly compensated employees.  Now, the nondiscrimination rule of Internal Revenue Code §105(h) – which has always applied to self-insured health plans – applies to fully insured plans as well.  However, the IRS has said that fully insured plans are not required to comply with the nondiscrimination rule until it issues new guidance.  (The existing §105(h) regulations are geared toward self insured plans.)

The new guidance, which was expected in 2012, has not yet been released.  In its absence, plan sponsors should consider reviewing the existing rules under §105(h) and engaging in “sensitivity testing” to ensure that no major plan design changes will be necessary once the new rules are published.

Cafeteria Plan Amendment Deadline
Beginning with the 2013 plan year, a “cafeteria” plan must limit the amount that a participant may contribute to a health flexible spending arrangement to $2,500 or less. The plan sponsor must also amend the written plan document to state the limit.

In general, an amendment to a cafeteria plan may be effective prospectively only, but the IRS is making an exception for amendments adding the new contribution limit.  Where a cafeteria plan complies in operation with the $2,500 limit, the written plan document may be amended to state the limit at any time through the end of calendar year 2014.

Reminder:  SBCs
By this time, a group health plan should have a uniform summary of benefits and coverage (“SBC”) for each benefit package that is available under the plan.  The health plan must distribute the appropriate SBC to each participant and beneficiary who enrolls or re-enrolls during an open enrollment period that begins on or after September 23, 2012.

Tax-Qualified Retirement Plans

Cycle B Plans
Plan sponsors whose employer identification numbers end in -2 or -7 are in “Cycle B” of the IRS’s determination letter program.  Existing determination letters for Cycle B tax-qualified retirement plans will expire on January 31, 2013 – so, by that date, Cycle B sponsors must apply for new determination letters.  Each determination letter application must be accompanied by an amended and restated plan that complies with the Pension Protection Act of 2006 and other recent legislation.

§436 Amendment Deadline Is Extended
New Internal Revenue Code §436 limits or prohibits the payment of benefits, and prohibits further benefit accruals, if a defined benefit plan is poorly funded.  All single employer defined benefit plans are required to include provisions that comply with §436, regardless of their current funding status.   A plan’s §436 provisions – like its “top heavy” provisions – must automatically take effect when certain conditions occur.

The §436 amendment deadline has been extended repeatedly.  Now, plan sponsors have until the last day of the plan year beginning in 2013 to add §436 language to their plans, or to perfect existing §436 language.  By the deadline, a plan’s  §436 language must comply not only with the statute, but also with the related final regulations (which are detailed and complex) and with IRS guidance interpreting the final regulations.

Reminder:  Summary Plan Descriptions
An updated summary plan description (SPD) must be furnished every five years if changes have been made to information in the SPD or if the related plan has been updated during that time period.  (Otherwise, a new SPD must be furnished every 10 years.)  In the interval between updated SPDs, plan participants must receive a summary of any “material modifications” to their plan no later than 210 days after the end of the plan year in which the modifications are adopted.

Immigration News

H-1B Visa Lottery Likely for Next Year
Each year, U.S. employers scramble to obtain H-1B visas for the foreign national professionals they employ. This year, H-1B visa numbers were exhausted in June, more than three months before the start of the government’s fiscal year on October 1, 2012, and six months earlier than in the prior fiscal year.  Only 85,000 H-1B visas become available each year.

In the absence of a legislative change that makes more H-1B numbers available, the situation can only get worse.  As the 2013 filing season approaches, employers should assume that there will be more demand for H-1B visas than there are numbers available.

The earliest filing date for the next batch of H-1B visas is April 1, 2013.  If – as is quite likely – more H-1B petitions are filed than there are numbers available, the U.S. Citizenship and Immigration Services will subject all petitions submitted on the first day to a random selection to determine which will be processed.  The H-1B petitions not selected in this lottery will be returned to the employers who filed them, and the affected workers will be unable to seek H-1B status for another year

Given the importance of getting new H-1B petitions filed on the first day of the 2013 filing season, we advise employers to work with counsel to have the petitions prepared before the end of March 2013.  If an H-1B visa lottery is necessary, there is no guarantee that any particular petition will be selected.  But unless the petition is filed on April 1, 2013, it may well stand no chance of acceptance.