California: New Legislation Amends the Paid Sick Leave as of July 13, 2015

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paid sick leave

California’s new paid sick leave law, the “Healthy Workplaces, Healthy Families Act of 2014” (paid sick leave law) recently went into effect on July 1, 2015. Less than two weeks later, the law has already been amended. On July 13, 2015, the California legislature passed AB 304 amending the Paid Sick Leave Law. Governor Jerry Brown signed the bill into law the same day, as the law contains an urgency clause and the changes become effective immediately. Below is a brief description of the most important changes.

 

Who are covered workers?

The amendments clarify that the law applies to an employee who works in California for the same employer for 30 or more days within a year.

 

How does the employer calculate the sick leave accrual?

The original law provided only one method of calculating the sickleave a grill. Now, with the amendment, the employer can calculate sick leave pay for nonexempt employees by one of the following:

  •  Using the same calculation used to determine the employees regular hourly rate for overtime purposes, or
  • Dividing the employees total wages (excluding overtime) by the employee’s total hours worked in the full pay cycle of the prior 90 days of employment.

Under the amendment, the employer can calculate sick leave pay for exempt employees by the following:

  •  The same method of calculating wages as it uses for other forms of paid leave, such as vacation.

 

Alternative accrual method:

  • The paid sick leave amendment clarifies that employers may use methods of occurring sick leave other than the “one hour of sick leave for every 30 hours worked method” (1-in-30 method) used in the original language of the law.
  • Alternative accrual method, such as accrual by pay period or by months of employment are also valid, provided that the employees receive at least 24 hours (3 days) of sick leave by the 120th calendar day of employment or the employer’s sick leave year (calendar year or otherwise).

 

Employers existing paid time off (PTO) or sick leave policies:

Under the amendment of the Paid Sick Leave law, sick leave policies that existed before January 1, 2015 and that use an accrual method that differed from the “1-in-30 method,” have been grandfathered IF they meet the following three conditions:

  1. Accrual occurs on a regular basis;
  2. Employees receive not less than eight hours (one day) of sick leave within the first three months of employment or sick leave year; and
  3. Employees receive at least 24 hours of sick leave within the first nine months.

 

Listed below are some additional minor changes and clarifications to the paid sick leave law:

  • Employers with unlimited sick leave policies can state “unlimited” on employees paycheck stubs, rather than having to list a specific number of days or hours.
  • Employers do not have an obligation to reinstate an employee sick leave upon rehire within one year, if the employer paid the employee for the accrued sick leave upon termination.
  • Employers do not have an obligation to ask employees about the reason for taking the leave.
  • The language in the law of “a year” means a year of employment, a calendar year, or another employer designated 12 month period.
  • The amendment clarifies that employees have to work for 30 days for the same employer before becoming eligible for paid sick leave.

 

Action items for Employers to comply with Healthy Workplace Healthy Family Act of 2014 (AB 1522):

If an employer implemented a new sick leave policy, or revise their previous sick leave or paid time off policy within the last six months, to comply with the requirements of the paid sick leave law, most likely, no immediate action is required. However, if an employer failed to revise its existing policy prior to July 1, 2015, the employer should immediately review the newly amended law to ensure their sick leave policy complies with the amended Paid Sick Leave law. Regardless of whether the employer’s policy is grandfathered or not, the newly amended law allows the employer to have an option of an accrual method that may better meet its business needs. We recommend that you have your policy reviewed by your legal counsel/Business attorney to ensure compliance and the appropriate language in your policies.

In addition, the employer must do the following to comply:

  • Display poster on paid sick leave (Spanish) (Vietnamese) where employees can read it easily.Provide written notice to employees with sick leave rights (Spanish) (Vietnamese) at the time of hire.
  • Provide for accrual of one hour for every 30 hours worked and allow use of at least 24 hours or 3 days or provide at least 24 hours or 3 days at the beginning of a 12 month period of paid sick leave for each eligible employee to use per year.
  • Allow eligible employees to use accrued paid sick leave upon reasonable request.
  • Show how many days of sick leave an employee has available. This must be on a pay stub or a document issued the same day as a paycheck.
  • Keep records showing how many hours have been earned and used for three years. Affected employers may review the AB-1522 Employment: paid sick days Affected Employers may review the text of the amendments for the additional changes

 

For more information:  Healthy Workplace Healthy Family Act of 2014 (AB 1522)

  • Retaliation or discrimination against an employee who requests or uses paid sick days is prohibited. An employee may file a complaint with the Labor Commissioner against an employer who retaliates or discriminates against the employee for exercising these rights or other rights protected under the Labor Code.
  • Local offices are listed on our website at http://www.dir.ca.gov/dlse/DistrictOffices.htm.

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

ACA Reporting Requirements: Increased Penalties and New Electronic Filing Steps

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On June 29, 2015, President Obama signed into law, The Trade Preferences Extension Act of 2015 (“Act”), which significantly increases potential penalties for insurers and employers that fail to comply with the new Affordable Care Act (ACA) Minimum Essential Coverage (MEC) and Large Employer reporting requirements first due in 2016.

 

As a recap:

  • IRS Code 6055 requires insurers and self-insured plan sponsors to file reports with the IRS to verify whether an individual had MEC during a given calendar year to satisfy the Individual Mandate.
  • IRS Code 6056 requires an “applicable large employer,” employers with 50 or more full-time equivalent to file reports with the IRS verifying whether it offered minimum value and affordable coverage to full-time employees and their dependents in a given calendar year to satisfy the Employer Mandate.

 

The new penalties are effective for returns and statements required to be filed in 2016 for the 2015 calendar year:

 

Penalty Old Amount New Amount
Failure to file/furnish an annual IRS return or provide individual statements to all full-time employees $100 $250
Annual cap on penalties $1,500,000 $3,000,000
Failure to file/furnish when corrected within 30 days of the required filing date $30 $50
Annual cap on penalties when corrected within 30 days of required filing date $250,000 $500,000
Failure to file/furnish when corrected by August 1 of the year in which the required filing date occurs $60 $100
Cap on penalties when corrected by August 1 of the year in which the required filing date occurs $500,000 $1,500,000
Lesser cap for entities with gross receipts of not more than $5,000,000 $500,000 $1,000,000
Lesser cap for entities with gross receipts of not more than $5,000,000 when corrected within 30 days of required filing date $75,000 $175,000
Lesser cap for entities with gross receipts of not more than $5,000,000 when corrected by August 1 of the year in which the required filing date occurs $200,000 $500,000
Penalty per filing in case of intentional disregard. No cap applies in this case. $250 $500

Click here to access the Act.

 

New Electronic Filing Steps

Additionally, this week the IRS provided more information on the process for electronic reporting to the IRS. The electronic filing system, known as the ACA Information Return (AIR) system, is significantly more complex than simply uploading a PDF file containing the pertinent information. Employers, insurers and third-party fulfillment or filing software developers are required to complete the following steps prior to being able to electronically submit any Reporting Forms:

  1. Register with the IRS’s e-services website, including submission of personal information about the person registering for the Submitting Entity
  2. Obtain an AIR Transmitter Control Code (TCC), a unique identifier authorizing each Submitting Entity to submit the Reporting Forms, and
  3. Pass a series of technical/system tests to ensure that Reporting Forms will be properly submitted when due.

The first two steps can be completed now. The third step is anticipated to become available later this year.

Click here for more information on the AIR program.

Reference:  As seen on www.informedonreform.com, dated July 7, 2015.

U.S. Supreme Court Ruling: Subsidies Will Continue for Federal Marketplace Coverage

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On June 25, 2015, the U.S. Supreme Court released their decision in the King v. Burwell case concerning the provision in the Patient Protection and Affordable Care Act (PPACA), and ruled that subsidies will continue to be available in all states and not just those with state-based exchanges.  Subsidies with federally-facilitated exchanges will continue, as the Obama administration intended.  The ruling affirmed the earlier decision by the Fourth Circuit Court of Appeals.

 

California has a state-based exchange, known as “Covered California,” and this decision does not affect things in California, but the clarification is important and applicable to the residents in the 34 states that utilize the Federal Marketplace.  Since nothing has changed as a result of this decision and NO ACTION is required by individuals who are currently receiving health insurance subsidies in California at this time.

 

The Court considered two possible scenarios in its decision:

  1. Adhere to the strict reading of the law that subsidies may only be available with state exchanges, OR
  2. rule in favor of the intent of the law for universal availability of subsidies in all states and all exchanged.

 

Following this ruling in favor of allowing premium subsidies to be distributed through both federal and state exchanges, the implementation of PPACA will continue and its insurance reform provision will remain in effect.

 

Since the continuity of subsidies, in both state and federal exchanges are no longer in question, it is our hope that legislation will make Health Care Reform more workable for both individual and business consumers.  In addition, it is our hope that sate and federal policymakers will not focus their attention on efforts to reduce the cost of providing health care, as PPACA has still not fully addressed the issue.  Lawmakers and regulators need to look at the portions of our health care system that are working well and keep a variety of health insurance products and options available to all consumers, and improve the areas that need adjustments.  We believe the employer-based system has been reliable and effectively delivered health coverage to generations of Americans, and as a nation, we need to preserve it!

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

New Rules and Penalties for Cash “In Lieu” of Benefits

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IRS Notice 2015-17: New Guidance for Employer Premium Reimbursement

In the past, many employers have helped employees pay for individual health insurance policies (i.e. through “Employer Payment Plans”) in the offering an employer-sponsored plan. In recent months, the Department of Labor (DOL), Health and Human Services (HHS), and Treasury Departments have released several pieces of guidance addressing these arrangements. According to this guidance, employer payment plans do not comply with several ACA provisions that took effect beginning in 2014. In May 2014 release from the IRS, violations of these rules can result in excess lines of $100 per day, per employee or $36,500 annually under section 4980D of the Internal Revenue Code.

Later, on February 18, 2015, the Internal Revenue Service issued Notice 2015–17. This Notice clarifies that increase in employee compensation does NOT constitute an employer payment plan, as long as the increases are not conditioned on the purchase of individual coverage; provides transitional relief from the excise tax for small employers through June 30, 2015 and to S-corporation healthcare arrangements for 2% shareholder employees; and addresses whether employers may reimburse employees for Medicare or TRICARE premiums for active employees under ACA. The DOL and HHS have reviewed the Notice and agree with the guidance provided.

What is an Employer Payment Plan?

An Employer Payment Plan is an arrangement through which an employer pays, directly or indirectly (i.e. including direct or indirect payments with after-tax dollars), and employee’s premiums for major medical coverage purchased and in the individual market (inside or outside the exchange), and/or Medicare Part B or D premiums. Employer Payment Plans violate one or more of the health insurance reform through the ACA (including the prohibition on annual dollar limits on essential health benefits and the requirement to provide preventive care without cost-sharing) and as such, excise taxes of up to $100 per day per employee would apply under Code Section 4980D. See IRS notice 2013–54 and Agency ACA FAQs XXII. The Notice also describes and clarifies the types of permissible arrangements that can be used for employers to reimburse Medicare Part B or D premiums or TRICARE expenses without running afoul of the health insurance reforms.

Temporary Transition Relief for Small Employers until June 30, 2015

The new Notice acknowledges this rule may be a challenge for smaller employers with 50 or fewer full-time equivalent employees for 2014 to comply with, and therefore, small employers will not be penalized for noncompliant premium payment plans that were in effect during 2014. According to Notice 2015–17, there is a delay in the excise tax penalty for employer some are not considered to be an applicable large employer. Small employers may require more time to implement alternative health coverage. This transition relief is temporary and small employers may be subject to the excise tax after June 30, 2015. In addition to waiving the penalty, the smaller employers will not be required to file the Form 8928 on which non-compliance is expected to be self-reported.

It is important to note, there is no relief for employers with 50 or more full-time equivalent employees, and they were required to begin compiling as of January 1, 2014.

 

S-Corporation healthcare arrangements for 2% shareholder employees

Under IRS Notice 2008-1, if a S-corporation pays for, or reimburses premiums for individual health insurance coverage during a 2% shareholder, the payment for reimbursement is included in income, and the 2% shareholder may deduct the amount of premiums, provided that all other eligibility criteria for deductibility are satisfied. Notice 2015–17 refers to this as “2% shareholder-employee healthcare arrangement.”

The Notice indicates that the agencies expect to issue additional guidance in the future regarding the application at the health insurance reforms to more than 2% shareholder arrangements. Although not addressed in the Notice, it would seem that similar relief maybe necessary for other self-employed individuals who are allowed to take a section 162(I) deduction for individual market health insurance, such as partners in a partnership. The Notice also indicates that the IRS and Treasury are considering whether additional guidance is needed regarding the federal tax treatment of health coverage provided to more than 2% shareholder employees. Until then, S-corporations and more than 2% shareholders may continue to rely on Notice 2008-1 with regard to tax treatment of these arrangements for all federal income and employment tax purposes.

 

Reimbursement of Medicare premiums

Notice 2015-17 indicates that certain employer payment plans that reimburse Medicare Part B and/or D premiums will be considered integrated with a group health plan for the purposes of the health insurance reforms, if the following conditions are satisfied:

  • The employer offers a group health plan, other than the employer payment plan, that provides minimum value coverage;
  •  The employee participating in the employer payment plan is actually enrolled in Medicare;
  •  The employer payment plan is available only to those who are enrolled in Medicare; and
  •  The employer payment plan limits reimbursement to Medicare Part B or part D premiums and excepted benefits, including Medigap premiums.

Employer should proceed with caution regarding this portion of the notice. While this arrangement may not be in conflict of healthcare reform is, it will violate Medicare Secondary Payer (MSP) rules, unless a small employer (under 20 employees) MSP exception applies.

 

TRICARE Arrangements

TRICARE is not considered an employer group health plan. As a result, such coverage cannot be integrated with an employer payment plan (such as plan reimbursing individual medical premiums). Notice 2015–17 provides a similar relief for HRA’s that reimbursed expenses incurred by employees covered by TRICARE.

TRICARE arrangements will be considered integrated with a group health plan for the purposes of healthcare reform, providing the following conditions are met:

  • The employer offers a group health plan, other than reimbursement arrangement, that provides minimum value;
  •  The employee participating in the reimbursement arrangement is actually enrolled in TRICARE;
  •  The reimbursement arrangement is available only to those who are enrolled in TRICARE; and
  •  The reimbursement arrangement limits reimbursement to cost share under TRICARE and excepted benefits, including TRICARE supplemental arrangement.

Similar to Medicare, TRICARE has strict coordination rules that make this type of arrangement illegal for employers subject to TRICARE coordination.

 

Call to Action for Employers:

Health Care Reform has made many changes to the insurance industry, and we are here to assist you with ensuring your groups compliance and Employee Benefit needs. With the new, additional guidance from the IRS, we recommend employers to do the following:

  • Evaluate your current policy and procedure regarding benefits;
  • Small employers that reimburse employees to pay directly for all or part of employee’s premiums for individual health coverage must change this practice and seek other options for group health insurance to avoid costly penalties for non-compliance.

If you have any questions or would like further clarification, MNJ insurance Solutions is here to assist you with your group health insurance needs and compliance.

 

More Information:

http://www.irs.gov/Affordable-Care-Act/Employer-Health-Care-Arrangements

IRS Notice 2013-54

IRS Notice 2015-17: Guidance on the Application of Code § 4980D to Certain Types of Health Coverage Reimbursement Arrangements

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

DOL Revised FMLA Definition of “Spouse”: February 25, 2015

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The Family and Medical Leave Act (FMLA) entitles eligible employees of covered employees of covered Employers to take unpaid, job-protected leave for specified family and medical reasons.  The FMLA also includes certain military family leave provisions.  On February 25, 2015, the U.S. Department of Labor revised Family Medical Leave Act definition of a “spouse.”   The Final Rule’s definition of spouse expressly includes individuals in lawfully recognized same-sex and common law marriages and marriages that were validly entered into outside of the United States if they could have been entered into in at least one state.

 

The DOL noted in its Fact Sheet on the Final Rule that the definitional change means that eligible employees, regardless of where they live, will be able to take:

  • FMLA leave to care for their lawfully married same-sex spouse with serious health conditions,
  • Qualifying emergency leave due to their lawfully married same-sex spouse’s covered military service,
  • Military caregiver leave for their lawfully married same-sex spouse,
  • FMLA leave to care for a stepchild, regardless of whether the in loco parentis (in the place of parents) requirement of providing day-to-day care or financial support for the child is met,
  • FMLA leave to care for a stepparent, who is same-sex spouse of the employee’s parent, regardless of whether the stepparent ever stood in loco parentis to the employee,
  • FMLA leave for their own serious condition, or
  • FMLA leave for the birth of a child or the placement of a child for adoption or foster care and bonding.

 

Action Items for Employers:

Employers that are required to provide FMLA should train and familiarize their Human Resources, Leave Administrators, and Managers/Supervisors with this new rule if they are involved with the leave management process, as benefits available to certain employees may change with the Final Rule.

In addition, we recommend that employers update their FMLA policy in their Employee Handbook, forms, and notices, if they specifically defined “spouse” in any matter, so that the documentation reflects the new changes of the DOL’s definition, which takes effect March 27, 2015.

 

Additional Information on the Final Rule:

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

Section 125: Who CANNOT Participate in a Cafeteria Plan, FSA, or HRA

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taxes

We often receive the question of “Who can and cannot participate in a Section 125 Cafeteria Plan, Flexible Spending Account (FSA), or HRA?”  From time to time, we find clients who are participating in tax-favored benefits who should not, as they are not eligible, or they do not have a plan document in place.  Of course, these items can be an issue!

First, it is important to note, an employer’s eligibility rules may not discriminate in favor of highly compensated individuals. Pursuant to Code section 125(g)(3), a plan does not discriminate in favor of highly compensated individuals if it meets all of the following:

  • The plan benefits a classification of employees that does not discriminate in favor of highly compensated individuals;
  • The same employment requirement applies to all employees and the plan does not require more than three years of employment to participate; and
  • Entry into the plan is not delayed.

While there are some exceptions, generally an employer can define which classes of employees and former employees are eligible to participate in a Section 125 plan. However, the following individuals are NOT eligible to participate in Section 125 Cafeteria Plan, Flexible Spending Account (FSA), or Premium Only Plan (POP), or any of its qualified benefits:

  • More than 2% shareholder of an S-corporation, or any of its family members,
  • Sole proprietor,
  • Partner in a partnership, or
  • Non-employee director, solely serving on a corporation’s board of directors, and not otherwise providing services to the corporation as an employee. (26 CFR Section 1.125-1(g)(2)(i).

There are a few exceptions to the above-mentioned rule:

  • Dual-status individuals are eligible IF they are both an employee and provide services to the employer as a director or independent contractor.  This rule is not available for partners or more than 2% S-corporation shareholders. (26 CFR Section1.125-1(g)(2)(iii).
  • Employee spouse of self-employed individuals are eligible if they are bona fide employees and are not themselves self-employed.  State laws relating to ownership (especially in community property states) may also affect their status.

NOTE:  Sole proprietors, partnerships, and S-corporations may still sponsor Section 125 Cafeteria Plans and FSAs to their employees, and there are benefits to both the employer and employee for doing so.  In addition, the more than 2% shareholders in a S-corporation can still deduct health insurance premiums paid or reimbursed by the S-corporation, but must report these payments as income.  (Notice 2008-1).

Health Reimbursement Arrangements (HRA)

Self-employed individuals cannot participate in HRAs.  The same rules described above for Cafeteria Plans and their qualified benefits also apply to HRAs.  Informal guidance by the IRS suggests that the self-employed individuals cannot participate in a HRA even if they are taxed on the value of the benefits they receive.

Other Things to Take into Consideration:

Non-discrimination Testing:  Since self-employed individuals are not eligible to participate in Cafeteria Plans, qualified benefits and HRAs, they should not be included in the non-discrimination testing for such plans.  However, for Section 125 testing, understand that employee-spouses will almost always qualify as Key Employees under the ownership attribution rules, and may make a plan susceptible to failing the Key Employee Concentration Test.

Consequences of Non-compliance:  The Section 125 Cafeteria Plan Regulations provide a non-exhaustive list of 11 operational failures that will disqualify the tax-favored status of a Cafeteria Plan and all of its qualified benefits, including a FSA, forcing all such benefits for participants to be reclassified as taxable income.  Similarly, an HRA with ineligible participants would lose its tax-favored status for all participants.

 

If you have any questions or would like to further discuss how a Section 125 can benefit your company and its employees, reduce benefit costs, and improve employee engagement, please contact MNJ Insurance Solutions at (714) 716-4303.

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

Section 125: Advantages for the Employer AND Employee

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Section 125 Cafeteria Plan

A Section 125 cafeteria plan is an employee benefits program designed to take advantage of the pre-taxed savings through the Section 125 of the Internal Revenue Code. The cafeteria plan allows employees to pay certain qualified expenses, such as health insurance premiums, on a pretax basis, and therefore reducing their taxable income and increasing their spendable/take-home income. Funds set aside in a flexible spending accounts (FSA) are not subject to federal, state, or Social Security taxes. On average, employee save from $0.25 to $0.49 for every dollar they contribute to the FSA.

Premium Only Plan (POP)

Employers may deduct the employees portion of the company sponsored insurance premium directly from eligible employees paycheck before taxes are deducted.

Flexible spending account (FSA)

In a FSA, employees may set aside on a pre-taxed basis of pre-established amount of money per plan year. The employee can use the funds in the FSA to pay for eligible medical, dependent care, or transportation expenses, depending on the plans the employer offers.

 

Benefits to the Employer:

Employers may add a FSA plan as a key element in their overall benefit package. Because an FSA plan offers a tax advantage, employers experience tax savings from reduced FICA, FUTA, SUTA, and Worker’s Compensation taxes on participating employees. These tax savings reduce or eliminate the various costs associated with offering the plan. Meanwhile, employee satisfaction is heightened because participating employees experience a “raise” at no additional cost to the employer.  Increase participation equals greater tax savings to the employer.

 

Benefits to the Employee:

An employee who participates in the FSA must place a certain dollar amount into the FSA each year they wish to participate. This election amount is deducted from the employee’s paycheck (for that amount divided by the number of payroll periods). For example, an employee is paid 24 times a year, and elects $1200 to contribute towards his/her medical FSA. The $50 is deducted pre-tax from each paycheck and it’s held in an account by the plan administrator to be reimbursed upon qualifying claims submissions.

 

The Use-It-Or-Lose-It Rule and Carryover:

This rule states that any funds remaining in the participating employee’s FSA account at the end of the plan year will be forfeited to the employer.

In addition, there is a new carryover provision that was implemented on October 31, 2013, where employees carryover up to $500 of unused medical FSA funds from one plan year to the next with no fees or penalties. Carryover ensures the participating employee a safety net when determining how much money to set aside in a medical FSA each year. Employees can contribute funds with more confidence, knowing they will not lose funds (maximum carryover is $500) at the end of the plan year. NOTE: This must be included in the Section 125 the plan document to allow such carryover.

Cafeteria plans are qualified, non-discriminatory benefit plans, meaning a discrimination test must be met based on the elections of participants.

 

Qualifying Events that will Allow a Participant to Adjust or Revoke a Plan Election:

  • A marriage or divorce
  • Death of spouse or dependent
  • Birth or adoption of a child
  • Termination or commencement of a spouse’s employment
  • Change in employment status from full-time to part-time, or part-time to full-time for you or your spouse

Please refer to your summary plan description “SPD” for more information about changing your elections. Changes must be made within 30 days of the qualifying event.

 

Nondiscrimination testing:

Section 125 of the Internal Revenue Code requires that cafeteria plan to be offered on a non-discriminatory basis. To ensure compliance, the Internal Revenue Code sets forth testing requirements that must be satisfied on an annual basis. These testing requirements are in place to make certain that cafeteria plan benefits are available to all eligible employees under the same terms, and that the plan does not favor highly-compensated employees, officers, and owners.

 

Exceptions in Participation in the Section 125 Cafeteria Plan:

The following individuals are not eligible to participate in a section 125 cafeteria plan, including a premium only plan “POP.”

More than 2% shareholder of an S-Corporation, nor any family members, Sole Proprietor, Partner in a partnership, or Nonemployee director, so we serving on the corporation’s board of directors (and not otherwise providing services to the corporation as an employee).

Special rules apply to more than 2% shareholder of the organization. These individuals may not participate in the plan, nor made their employee spouse, children, parents, and grandparents. In determining the status of an individual that becomes or ceases to be more than a 2% shareholder during the course of the S-corporation’s taxable year, the individual is treated as a more than 2% shareholder for the entire year.

 

If you would like more information and find out if a Section 125 Premium Only Plan and/or Flexible Spending Account is right for your company, please contact MNJ Insurance Solutions at (714) 716-4303.

 

For more details, please refer to:

http://www.irs.gov/pub/irs-drop/n-05-42.pdf

FAQs about Affordable Care Act Implementation (Part XXII)

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.