Federal Agencies Delay Automatic Enrollment for Group Health Plans

Posted by Dana Thrasher on February 20, 2012

iStock_nowlater.jpgRecall that the Patient Protection and Affordable Care Act (“PPACA”) – the health care reform legislation passed in 2010 – originally required that group health plans implement automatic enrollment in 2014.  The Internal Revenue Service, Department of Labor and Department of Health and Human Services have jointly issued, in the form of “Frequently Asked Questions” or “FAQs,” guidance that delays the implementation of the group health plan automatic enrollment requirement.  Employers (to whom the Fair Labor Standards Act applies and with more than 200 full-time employees) have reprieve regarding the original 2014 deadline until the DOL issues final regulations that provide automatic enrollment guidance.

The FAQs detail issues regarding the requirement for employers to provide coverage to full-time employees or be subject to a penalty assessment (the “employer shared responsibility provisions”).  The FAQs also provide guidance on how employers will determine whether employees are “full time employees” and how to use W-2 income rather than household income to determine whether coverage is “affordable coverage.”  The FAQs provide that the agencies will issue further guidance on the coordination of the employer shared responsibility provisions and the 90-day waiting period limitation (and even more specifically, the application of the waiting period limitation to part-time and seasonal employees).

This guidance provides specific examples that will assist companies in preparing for future compliance.  The agencies are accepting public comments on the guidance through April 9, 2012. 

Gambling on the Employee/Independent Contractor Issue?

Posted by Jewell Lim Esposito on October 25, 2011

JLE_Headshot_Swidler.jpgWelcome to the Worker Classification Casino!

First, the IRS is scrutinizing the employ/independent contractor issue -- and offering a very nice settlement program to encourage companies to prospectively classify as "employees" workers who they improperly classified as "independent contractor."  See our earlier blog piece about the IRS's new program at 2011 Voluntary Amnesty Employee Classification.pdf.

Second, the Department of Labor and 11 state governments (Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington) are working together to fight improper classification of workers as "independent contractors." 

And now, California -- who is NOT a state listed above -- has enacted legislation effective for the new calendar year that imposes as high as a $25,000 per violation penalty for companies  who willfully misclassify "employees" as "independent contractors."   See CA Penalties.pdf. 

The federal government and state legislatures send a clear message:  misclassification is wrong.  

Companies should expect challenges not only from the federal and state governments, but plaintiffs' lawyers who can use "whistle blower" statutes to coax employers to confront the statutory penalties (at least in California), wage-and-hour liability, federal/state employment taxes, and ERISA obligations.  iStock_poker chips.jpg

Companies must grapple with the worker classification issue now.  To not do so is to take a big gamble, with very bad odds.

IRS Focuses on 401(k) Plans -- Audits Will Begin

Posted by Jewell Lim Esposito on February 07, 2011

Thumbnail image for iStock_Microscope.jpgDuring the 2010 summer, the IRS issued its first-ever electronic 401(k) Compliance Check Questionnaire to 1,200 plan sponsors.  According to Monika Templeman, IRS Director, Employee Plan Examinations at a meeting with both IRS officials and tax practitioners last week, some "double digit" (i.e., 10 to perhaps 99) plan sponsors refused to respond.  She signaled that the IRS intends to conduct a full scope audit of those non-responder plans.  As to those who did respond, the IRS will help guide those who might have experienced some compliance issues, as a sort of gesture of gratitude for helping the IRS determine where the ERISA/tax lapses were overall. Compared to the full scope audits, Templeman said the IRS involvement for those who took the time to respond would be "nothing draconian."

The IRS expects to publish the full compilation of the compliance issues revealed through the 401(k) Questionnaire this coming summer.  Templeman listed, though, the issues that seem to pervade:

  • Participants obtain loans or hardship distributions, without having met the Internal Revenue Code for allowing such loans or hardship distributions;
  • Companies fail to transmit employee elective deferrals timely to the plan;
  • Companies fail to amend their plan documents timely and, better yet, fail to execute the documents;
  • Companies do not use the proper definition of "compensation" when determining match or other allocations;
  • Companies fail to include eligible employees into their plans;
  • Companies do not know how to evaluate results of discrimination testing, including the ADP/ACP test (and, if there are failures, companies do not know how to resolve them). 

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