2016 Employee Benefits Update

The following is a summary of important pension and benefits tax developments that have occurred in late 2015 and may affect you, your family, your investments, and your livelihood.

New tax legislation. While Congress has been chastised by some for being gridlocked, there was a flurry of new laws containing tax provisions in the last quarter of 2015:

▪ The Protecting Americans From Tax Hikes (PATH) Act (P.L. 114-113, 12/18/2015) retroactively extended 50 or so taxpayer-favorable tax “extenders”—temporary tax provisions that are routinely extended by Congress on a one- or two-year basis, that had been expired since the end of 2014. The PATH Act made permanent more than a dozen of the extenders, including parity for exclusion from income for employer-provided mass transit and parking benefits, and nontaxable IRA transfers to eligible charities. The PATH Act also allowed rollovers from retirement plans to SIMPLE accounts, contained rules related to church plans, clarified and expanded the rules on the exclusion for health care reimbursements paid under governmental accident or health plans that have covered deceased participant's beneficiaries since before 2008, provided an exception for interests held by foreign retirement or pension funds, and contained provisions on numerous other rules.

▪ The Consolidated Appropriations Act (P.L. 114-113, 12/18/2015) included a two-year delay of the Affordable Care Act's 40% excise tax on high cost employer-sponsored health coverage (i.e., the so-called “Cadillac” tax) from 2018 to 2020, and a one-year suspension of the annual fee on health insurance providers in 2017. The Act also ordered a study on more suitable benchmarks for age and gender adjustment of the Cadillac tax.

The Consolidated Appropriations Act also allows a participant in a qualified retirement plan, Section 403(b) plan, or a state or local governmental Section 457 plan to roll over his or her distribution from that plan to a SIMPLE retirement account (i.e., an individual retirement account established in connection with a SIMPLE retirement plan). Previously, a SIMPLE account could only accept contributions under another SIMPLE plan. The change is effective for rollovers made after the Act’s enactment and applies only to rollovers after the two-year period beginning on the date a participant in such an employer plan first participated in the SIMPLE plan sponsored by his or her employer. The plan administrator of a qualified employer plan with a participant who requests such a rollover to a SIMPLE account will have to verify that the two-year period has been satisfied before making the rollover. Pending guidance from the IRS, it is unclear whether employer plans will have to be amended to permit rollovers to SIMPLE accounts, or whether amendments will be needed only as to plans whose sponsors wish to permit such rollovers.

▪ The Fixing America's Surface Transportation (FAST) Act (P.L. 114-94, 12/4/2015) repealed a recently enacted provision that provided for a longer automatic extension of the due date for filing Form 5500, and thus, the automatic extension for filing Form 5500 remains at 2½ months.

▪ The Bipartisan Budget Act of 2015 (P.L. 114-74, 11/2/2015) included changes to rules on the single-employer plan annual Pension Benefit Guaranty Corporation premium rates, pension payment acceleration, mortality tables, extension of current funding stabilization percentages to 2018 and 2019, and a repeal of the Affordable Care Act's automatic enrollment provision.

▪ The Protecting Affordable Coverage for Employees Act (P.L. 114-60, 10/7/2015) revised the non-tax definition of small and large employers for purposes of the Affordable Care Act. This in turn triggered the modification of a benefits-related tax rule under Code Sec. 125(f)(3) permitting certain qualified health plans to be offered through cafeteria plans.

Standard mileage rates down for 2016. The optional mileage allowance for owned or leased autos (including vans, pickups, or panel trucks) decreased by 3.5¢ to 54¢ per mile for business travel after 2015. This rate can also be used by employers to provide tax-free reimbursements to employees who supply their own autos for business use under an accountable plan, and also be used to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense decreased by 4¢ to 19¢ per mile.

Affordable Care Act information reporting deadlines are extended. Under the Affordable Care Act, insurers, self-insuring employers, and certain other providers of minimum essential coverage must file information returns with the IRS and furnish certain information to individuals. Information reporting is also required for applicable large employers (ALEs). In guidance, the IRS has extended the due dates for certain 2015 information reporting requirements under the Affordable Care Act. The IRS has also provided guidance to individuals who, as a result of these extensions, might not receive a Form 1095-B or Form 1095-C indicating that the individuals had minimum essential coverage by the time they filed their 2015 tax returns.

Health coverage tax credit. The IRS provided guidance on claiming the health coverage tax credit (HCTC) for tax years 2014 and 2015, with particular emphasis on circumstances in which the taxpayer also qualifies for the Code Section 36B premium tax credit. Eligibility for the HCTC is limited to displaced workers receiving allowances under the Trade Adjustment Assistance program, and Pension Benefit Guaranty Corporation pension recipients who are age 55 or older. For months in tax years beginning in 2014 or 2015, an individual enrolled in a qualified health plan who is both an eligible individual for purposes of the HCTC and the premium tax credit in a month may claim either credit for the month. But once the HCTC election is made for an eligible coverage month, the individual is ineligible to claim the premium tax credit for the same coverage in that coverage month and for all subsequent months in the tax year for which the individual is eligible for the HCTC.

IRS Compliance Questions on 2015 Forms 5500 Should Not Be Completed.

IRS has announced that because the proposed 2015 IRS compliance questions on the Forms 5500 and 5500-SF, and Schedules H, I, and R were not approved by the Office of Management and Budget when the 2015 Form 5500 and Form 5500-SF were published on December 7, 2015, plan sponsors should not complete these questions for the 2015 plan year.

Article written by Thomas A. Conlon, Jr., Esq. For more information, contact Mr. Conlon at (607) 231-6744 or via email at tconlon@hhk.com.

 

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