Seyfarth Synopsis: The IRS has announced adjustments decreasing the affordability threshold and increasing employer shared responsibility payments for plan years beginning in 2022.

On May 9, 2022, the IRS updated the Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act page on the IRS website to include 2022 indexing adjustments for the affordability threshold and employer shared responsibility payments.

Affordability

Under the ACA, applicable large employers (ALEs) that do not offer affordable minimum essential coverage to at least 95% of their full-time employees (and their dependents) under an eligible employer-sponsored plan may be subject to an employer shared responsibility penalty. The IRS determines whether health insurance coverage is affordable using an affordability threshold that is indexed and adjusted each year.

For plan years beginning in 2022, coverage is considered affordable if an employee’s required contribution for self-only coverage does not exceed 9.61% of the employee’s household income. This is a decrease of 0.22% from the 2021 affordability threshold of 9.83%.

Penalty Amounts

Employer shared responsibility penalties (which are calculated monthly) are indexed and adjusted each year. The IRS will assess an ALE with an employer shared responsibility penalty under IRC Section 4980H:

  • Subsection (a) – if the ALE fails to offer at least 95% of its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, and at least one full-time employee is allowed a premium tax credit.

The (a) penalty is determined by multiplying the total number of full-time employees (minus 30) by the penalty amount. For plan years beginning in 2022, the (a) penalty amount is $2,750, or $229.17 per month.

  • Subsection (b) – if the ALE does offer coverage to at least 95% of its full-time employees, but the coverage is not affordable and at least one full-time employee receives a premium tax credit.

The (b) penalty is determined by multiplying the number of full-time employees who receive a premium tax credit for any month by the penalty amount. For plan years beginning in 2022, the (b) penalty amount is $4,120, or $343.33 per month.

The increases in the Employer shared responsibility penalties are summarized in the chart below:

4980H Employer Shared Responsibility Penalties 2021 2022 Change
4980H(a) Employer Shared Responsibility Penalties $2,700 ($225.00 per month) $2,750 ($229.17 per month) +$50
4980H(b) Employer Shared Responsibility Penalties $4,060 ($338.33 per month) $4,120 ($343.33 per month) +$60

 

Culminating a flurry of late June opinions released by SCOTUS this week, the court today in Dobbs v. Jackson Women’s Health Organization has taken the extraordinary step of ending decades of precedent surrounding the protections for abortion-related services under the U.S. Constitution. The opinion has been widely anticipated since a draft opinion was leaked, and overturns the prior SCOTUS opinions in Roe v. Wade (1973) as well as Planned Parenthood v. Casey (1992).

The result is that states will be allowed to regulate abortion access within their borders. As we have previously covered, employers with facilities and employees in states which restrict access to abortion, prenatal, contraceptive and other similar services will be faced with a decision on how to ensure equal access for health plan services to their workforce. For more information on the issues underlying this analysis, please read our Legal Update here, and listen to our Podcast here.

As always, please feel free to reach out to one of our Employee Benefits attorneys for more personalized assistance.

Summary Plan Descriptions (SPDs) are an essential mechanism for employers to use when informing employees and participants of benefits offered under their plans. What kind of information is required to be included in an SPD? Should you consider including information that’s not required?  Who drafts them? How are SPDs distributed, and how often? Grab your cup of coffee and tune in to hear Richard and Sarah chat with Liz Deckman, a Partner in Seyfarth’s Employee Benefits and Executive Compensation Department, about these questions and more!

Click here to listen to the full episode.

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Should the recently leaked SCOTUS draft opinion overturning Roe v. Wade become law this summer, trigger laws across the Country will go into effect, illegalizing abortion in a significant number of states. Other states are exploring implementing new restrictions on abortion, contraceptive and prenatal services. Many clients have already asked us about what options they may have available to them to support and assist their employees who live in those states. What can employers do if services provided under the terms of their health plan are not available to participants depending on where the participant lives? Can health plans cover expenses related to out of state travel for obtaining abortion services? Grab your cup of coffee and tune in to hear Richard and Sarah chat with Diane Dygert and Ben Conley, who are both Partners in Seyfarth’s Employee Benefits and Executive Compensation department, about these timely questions and more.

Click here to listen to the full episode.

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Seyfarth Synopsis: The IRS has announced increases to key limits for certain health and welfare benefit programs, including HSA contributions for 2023.

The Internal Revenue Service (IRS) recently released 2023 cost-of-living adjustments applicable to dollar limitations for employer-sponsored health and welfare plans.

The changes in the 2023 cost-of-living adjustments for employer-sponsored health and welfare plans are summarized in the table below:

Health and Welfare Program Limits (Rev. Proc. 2022-24)
2022
2023
Change
Health Savings Account (HSA) Annual Contribution Limit

  • Self-only Coverage
  • Family Coverage

 

$3,650

$7,300

 

$3,850

$7,750

 

+$200

+$450

High Deductible Health Plan (HDHP) Minimum Annual Deductible

  • Self-only Coverage
  • Family Coverage

 

$1,400

$2,800

 

$1,500

$3,000

 

+$100

+$200

HDHP Maximum Annual Out-of-pocket Limit (Deductibles, Co-payments and Other Amounts, but not Premiums)

  • Self-only Coverage
  • Family Coverage

 

 

$7,050

$14,100

 

 

$7,500

$15,000

 

 

+$450

+$900

Maximum Amount that May Be Made Newly Available for an Excepted-Benefit Health Reimbursement Arrangements (EBHRA) $1,800 $1,950 +$150

Employers who sponsor health and welfare plans should take advantage of the new increased limits by making adjustments to plan administrative/operational procedures.

Seyfarth Synopsis: The ever evolving landscape of environmental, social and governance (ESG) factors and 401(k) plan investment options may have just become even more complicated.

As we’ve covered on our blog over the last few years, the DOL’s guidance on whether environmental, social and governance (ESG) investments are an appropriate investment for ERISA plans has changed significantly. (See our prior blog posts here, here, and here for more background on that complicated history.) The Securities and Exchange Commission (“SEC”) has added a new potential twist that could place fiduciaries of retirement plans, like 401(k) plans, and the Board of Directors of companies that sponsor such plans in a very difficult position. Specifically, the SEC recently released correspondence related to its denial of the request from two different companies to exclude from its proxy materials a shareholder’s proposal concerning the investment options under the company’s retirement plan.

To read the full legal update, click here.

Navigating the appropriate handling of a deceased participant’s plan benefit is an all too common concern for retirement administrators.  What’s the big deal? Seems like it should be simple enough — just pay the beneficiary — but in practice it can be a major headache. How do plan administrators ultimately decide who the proper beneficiary is, and who will receive the plan benefit? How do beneficiary designations work in the context of divorce? What if the participant didn’t designate a beneficiary at all? What can employers and plan administrators do to help mitigate common challenges associated with beneficiary designations? Grab your cup of coffee and tune in to hear Richard and Sarah chat with Jennifer Kraft, a Partner in Seyfarth’s Employee Benefits and Executive Compensation department, about these burning questions and more!

To listen to the full episode, click here.

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A federal judge has dismissed a class action lawsuit that challenged the Washington Long-Term Cares Act (“Cares Act”), ruling that because the Cares Act is not established or maintained by an employer and/or employee organization, it is not an employee benefit plan and therefore not governed or preempted by ERISA. The Court also held that the premiums assessed by the Cares Act constitute a state tax.  As such, only state courts, not U.S. federal courts, have jurisdiction to rule on the Cares Act.

Click here to read our Legal Update on the dismissal of the law suit.

We are excited to announce the rollout of Coffee Talk With Benefits, a podcast brought to you by our Employee Benefits & Executive Compensation Department. Each episode will provide brief and lively discussions of questions, issues, and concerns that our EB clients and colleagues encounter on a daily basis or wrestle with from time-to-time. Our conversations will be informed by you, our clients and friends, and reflect the everyday questions asked of us in our role as employee benefits counsel to large and small businesses in a variety of sectors, including retail, manufacturing, technology, health and hospital systems, and higher education, to name a few. In each episode, our hosts, Richard Schwartz and Sarah Touzalin, will interview a guest with expertise in the employee benefits world.

To hear a short trailer for this exciting new Podcast click here. And, if you like what you hear (yes, employee benefits can be amusing, interesting and exciting!), be sure to subscribe to the Podcast so as not to miss an episode!

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Episode 1 – The Impact of Disability on Retirement Plan Participation

One of your employees goes out on disability. What happens to their retirement plan participation while on disability? Is the individual still an employee? Do employee deferrals and loan repayments continue? What about employer contributions? Is the individual eligible to take a distribution while out on disability? So many questions, so little time! Grab your cup of coffee and tune in to hear Richard and Sarah chat with Diane Dygert, Chair of the Seyfarth Employee Benefits and Executive Compensation department about these burning questions, and more!

Click here to tune in for our inaugural episode!

 

 

 

Seyfarth Synopsis: The SECURE Act, passed just before the onset of the COVID-19 pandemic at the end of 2019, significantly altered the retirement plan landscape. For a reminder on how the SECURE Act changed the retirement landscape click here and here. In 2021, another bill, Securing a Strong Retirement Act of 2021, was considered but never passed. See our blog post here. The bill was revised and reconsidered in 2022, renamed the Securing a Strong Retirement Act of 2022 (“SECURE 2.0”), recently passed the House on March 29, 2022, and has been referred to the Senate. SECURE 2.0 builds on the SECURE Act and, if enacted, will require another close review of current retirement plan provisions and administration.

Is SECURE 2.0, as passed by the House, better than the original SECURE Act? Below are some of its provisions so plan sponsors and administrators can decide for themselves.

  • Required Minimum Distributions. The original SECURE Act raised the RMD age from 70-1/2 to age 72 beginning in 2020. Under SECURE 2.0, the RMD age would increase to age 73 in 2023, age 74 in 2030, and age 75 in 2033. Also, excise taxes for certain RMD failures would be reduced.
  • Mandatory Cashout Limit. The mandatory cashout limit, when distributions can be made without a participant’s consent, would increase to $7,000 from $5,000 in 2023.
  • Automatic Enrollment and Escalation in New 401(k) and 403(b) Plans. Newly established 401(k) and 403(b) plans would be required to automatically enroll eligible employees at 3% with automatic increases on and after January 1, 2024. Plans in existence prior to the enactment of SECURE 2.0, along with other limited exceptions, would be exempt from this rule.
  • Catch-Up Contributions. Beginning in 2024, participants at ages 62, 63, and 64, would be able to contribute up to $10,000 (indexed for cost-of-living) as catch-up contributions, an increase from the current limit of $6,500. Additionally, beginning in 2023, all catch-up contributions (other than those made to SEPs or SIMPLE IRAs) must be Roth contributions.
  • Employer Matching Contributions on Student Loan Repayments. Beginning in 2023, 401(k), 403(b), and governmental 457(b) plans would be permitted to match a participant’s student loan payments similar to plan elective deferrals.
  • Long-Term/Part-Time Workers. The original SECURE Act amended the Code to provide that part-time employees who work at least 500 hours each year for three consecutive years must be eligible to make salary deferrals into a 401(k) plan. SECURE 2.0 would amend ERISA to include both 401(k) and 403(b) plans, and change the eligibility requirement to 500 hours in two years. The first group of part-time workers could become eligible for a plan in 2023, not 2024 as is the case under the original SECURE Act.
  • Roth Matching Contributions. For 401(k), 403(b), and governmental 457(b) plans, plan sponsors could permit employees to elect that matching contributions be treated as Roth contributions.
  • Hardship. For hardship withdrawals, plans would be permitted to rely on an employee’s self-certification that the employee has incurred a hardship. Additionally, SECURE Act 2.0 would harmonize the rules for hardship distributions under 403(b) plans with the 401(k) plan rules (e.g., making account earnings under a 403(b) plan available for hardship distributions).
  • 403(b) Investment in Collective Investment Trusts. Investment in Collective Investment Trusts (CITs) is currently permitted in various plans, including 401(k) plans, and is often used as a lower cost investment option for participants. 403(b) plans have historically been prohibited from investing in CITs, but SECURE 2.0 would specifically allow it beginning in 2023.

Other interesting proposals in SECURE 2.0 include permitting employers to offer small financial incentives to encourage participation in 401(k) plans, and penalty-free withdrawals of plan account balances (of up to $10,000) to victims of domestic abuse. Also, while the proposal eliminates the requirement to provide certain annual notices to employees who have not enrolled in an individual account plan as long as they receive an annual reminder notice of plan eligibility, it also adds a requirement to provide paper statements to 401(k) plan participants at least once a year and at least once every three years to pension plan participants. Finally, the proposal notably does not include any provisions about the much talked about elimination of Roth conversions.

As noted, this bill has only been passed by the House. Although there was significant bipartisan support in the House, it is likely that the provisions will be modified as the bill makes its way through the Senate. To stay up to date, be on the lookout for additional Beneficially Yours blog posts and Seyfarth Legal Updates.