Benefits issues employers should clear up before 2018
Congratulations, you survived another eventful year in the world of benefits management. As the days grow shorter and 2018 nears, now’s a great time to take an hour and tidy up the benefits pantry. Here are a few suggested areas of focus, and seven questions you should ask yourself.
1. Did your organization receive the dreaded Letter 226J from the IRS this month? If so, the U.S. Treasury believes your organization owes an Affordable Care Act employer shared responsibility penalty for tax year 2015. As you know, these penalties can easily exceed $1 million. Because the window to challenge this assertion is only 30 days, anyone handling the mail at your organization should be on high alert for this letter. Remember all of the confusion surrounding the 2015 Form 1095-Cs filed in early 2016? It’s likely that the seeds of that confusion will cause the germination of many of these 226J letters. All of the work you’ve performed since 2010 to eliminate or mitigate this penalty risk could be for naught if this letter sits on someone’s desk over the holidays.
See Q&As 55-58 in this IRS publication for more details.
2. Is any financial mischief occurring with your pharmacy rebates? If your company sponsors a self-funded health plan, you’ve likely spent hours studying the pharmacy benefit manager contract, renegotiating contract terms and/or changing the PBM. Much of your financial analysis likely centered on contractual rebate guarantees. But, when’s the last time you audited the actual resulting rebate reports? You might be surprised how many errors I see from my desk in these audit reports. This morning, I’m looking at a report that is off by almost $100,000. Believe it or not, the PBM says a data entry error caused the credited rebate to be $10,000 versus the actual $110,000. Right, this kind of mistake makes me wonder, too. The good news is this 10 minute audit will allow my client’s HR VP to provide her CFO with a $100,000 early Christmas present.
3. When’s the last time you raised your short and long term group disability benefit maximums? Are the levels still appropriate? To double-check when your long-term disability benefit caps out, take the monthly maximum ÷ the benefit percentage x 12 months. For example: $5,000 monthly maximum ÷ 60% benefit percentage x 12 months = $100,000 wage ceiling. How many of your highly compensated and key employees earn more than this amount? Should the ceiling be adjusted upward?
Do the same calculation for the short term disability weekly benefit. For example: $600 maximum per week ÷ 60% x 52 weeks = $52,000. Does this ceiling still work?
4. When’s the last time your Wrap Document and Wrap Summary Plan Description was amended? Many companies simplify benefit documentation and Form 5500 filings by creating a single health and welfare wrap document. But, if these documents are not given periodic TLC, they can quickly become outdated and conflict with underlying insurance certificates and contracts. Pick up your current document and take a read. Ask your attorney if updates are needed. Pay special attention to the eligibility section, vendor listing and flexible spending account maximum. By the way, if your intention is to let the FSA max float up each year as Treasury increases the max, consider referencing the statutory maximum in the documents versus stating a specific number. That way, you won’t have to amend every time the maximum changes.
5. Can you easily articulate your group health plan’s employee contribution strategy? How does the math work? If your strategy has gone sideways or vanished over the years, now’s a good time to reconstruct a mathematical framework in synch with your total compensation philosophy. An articulate strategy will save you and your colleagues hours at renewal time, as the new employee contributions rates will simply fall into place.
6. For non-calendar year plans, will you play chicken with the 2020 Cadillac tax? When I mention the Cadillac tax to my colleagues in CBIZ accounting and tax, they laugh at me and holler,
“Zack, good grief, there’s no way the Cadillac tax is ever going to take effect!”
Meanwhile, my colleagues in CBIZ regulatory affairs remind me that Congress has to actually do something to prevent this tax hurricane from coming ashore. And, because this tax is scheduled to begin Jan. 1, 2020 and not when the plan year begins in 2020, the last time an employer, for example, with a Mar. 1 plan year can make Cadillac tax mitigation adjustments concurrent with the beginning of its plan year is Mar. 1, 2019. Thus, if Congress hasn’t taken action by around October 2018 (less than a year from now), this employer will face a decision: Does it make final changes Mar. 1, 2019 or does it play chicken with Congress and this tax, hope that Congress takes action before 2020 arrives, and if Congress does not, make final adjustments off cycle Jan. 1, 2020? Of note, off cycle changes will likely essentially create a quasi-open enrollment for many employees (check with your attorney about these rules).
If you sponsor a non-calendar year plan, now’s a good time to huddle with your colleagues and benefits consultant and decide if you would make final changes concurrent with the 2019 plan year or play chicken with Congress. Your thinking will likely be clearer on this topic now, than if you wait until the deadline.
7. Are you all set for the annual Form 1095-C festival when the New Year begins? Isn’t it somewhat surprising how the ridiculously complex becomes easier over time? As this is the third year of this Form 1095-C festival, it should be easier for many employers. Maybe. Note that the deadline for distributing the Form 1095-Cs to employees is Jan. 31, 2018. A lovely way to begin the year.