The IRS issued Notice 2013-45 recently, the official guidance document explaining the one-year delay in the implementation of the employer pay-or-play penalties under the Patient Protection and Affordable Care Act ("PPACA") health care reform.
As announced in a Treasury blog, the IRS has delayed for one year the information reporting requirements (found in sections 6055 and 6056 of the Internal Revenue Code) that apply to insurers, self-funded plans, government agencies and large employers regarding health plan coverage. This purpose of this delay is to allow the IRS addition time “for dialogue with stakeholders in an effort to simplify the reporting requirements” and for employers and other reporting entities to “develop their systems for assembling and reporting the needed data.” Since the collection of this information crucial for the IRS’ determination of an employer’s liability for pay-or-play penalties will not occur in 2014, the IRS has announced that it will not impose pay-or-play penalties for 2014. In the Notice, the IRS states that it expects that proposed regulations on the information reporting requirements will be issued later this summer.
The Notice reiterates that this delay will have no effect on any other parts of PPACA, including the premium tax credit or the individual mandate.
Based on this delay, employers may wish to consider delaying for a year the implementation of certain changes planned for group health plans for 2014 in order to avoid the pay-or-play penalties. These changes include, for example, (1) expansions of eligibility for health benefits to all employees who work 30 or more hours a week; (2) changes to make health plan coverage “affordable” or to assure that it provides “minimum value”; and (3) the implementation of measurement and stability periods for seasonal and variable hour workers. Of course, any such decision to delay may have an impact on employees, since they will be required to purchase insurance next year or pay a tax penalty if they do not have coverage through their employers or from another acceptable source, such as Medicaid or Medicare. Employers will also want to consider the impact of their coverage decisions for 2014 on the availability of the premium tax credit: employees who are not enrolled in employer-sponsored health plans and who are not offered affordable, minimum value coverage by their employers may qualify for premium tax credits when they purchase insurance through the exchanges.
Employers have until the end of the year to take advantage of relief from penalties under section 409A of the Internal Revenue Code for agreements that require employees to sign releases before severance benefits are paid. Section 409A was enacted in 2004 to regulate deferred compensation. Internal Revenue Service ("IRS") regulations made clear that it would affect not only traditional deferred compensation arrangements, but also arrangements previously not thought of as deferred compensation. Severance and change-in-control benefits are often subject to the section 409A requirements. Employees pay most of the price for mistakes that result in violations of section 409A, including a 20 percent tax penalty.
The IRS surprised many in early 2010 when it announced that agreements that require the employee to sign a release of claims (or non-competition or non-solicitation agreement) before severance or change-in-control payments start may run afoul of section 409A because they give the employee some control over when payments will start, sometimes allowing the employee to choose which year payments will be made. Industry push-back persuaded the IRS to provide transition relief, the last of which will end on December 31, 2012. This relief allows employers to modify agreements to deal with such release requirements to specify when payments will be made and what happens if a release is not signed on time. The transition relief allows correction of agreements with these problems – even if payments have already started – something not otherwise available. In addition, the employer is not forced to notify the employee of the documentary violation of section 409A and the employee does not have to attach a notice to the employee’s personal income tax return about the violation. After December 31, 2012, this relief will no longer be available.
If you are interested in a more detailed discussion of this relief and the required changes to employee releases, check out Stoel Rives' recent Client Alert on the subject.