May 2015 HR Alert | Revenue-Procedure 2015-27: IRS Updates Qualified Retirement Plan Correction Program
 
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IRS Prohibits Reimbursement of Individual Health Plan Premiums; Limited Transition Relief Available for Small Employers

Earlier this year, the IRS issued Notice 2015-17 (the “Notice”), which addresses employer direct payment or reimbursement of individual health plan premiums. Prior to the Affordable Care Act (ACA), employers were allowed to reimburse premiums paid for individual coverage on a tax-favored basis. Many small employers adopted this type of arrangement rather than sponsoring a group health plan. However, the Notice confirms that these employer payment plans will fail to comply with many of the ACA market reforms for group health plans (i.e., prohibition of annual limits on essential health benefits). Consequently, an employer may not either directly pay premiums for individual policies or reimburse employees for individual policy premiums, even on an after-tax basis. 

The Notice does, however, make available limited relief from excise taxes for small employers that sponsor employer payment plans. For purposes of the Notice, a small employer is an employer that is not an applicable large employer (ALE). Generally, an ALE is an employer that employed at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. Pursuant to the Notice, excise taxes will not apply to employer payment plans for 2014. Small employers also will not be assessed an excise tax from January 1 through June 30, 2015. After June 30, the relief provided under the Notice is no longer available and small employers that continue to offer employer payment plans may be liable for an excise tax of $100/day.

Employers eligible for the aforementioned relief are also not required to file Form 8928, which is used by group health plans to self-report excise taxes, solely for having employer payment plans during the transition relief period. The transition relief provided under the Notice does not extend to stand-alone health reimbursement arrangements (HRAs) or HRAs that reimburse medical expenses other than insurance premiums.  

The Notice clarifies that an employer payment plan does not include an arrangement where an employer increases an employee's compensation but does not condition the payment of the additional compensation on the purchase of health coverage or otherwise endorse a particular insurer, policy, or form of health insurance. Additionally, the reimbursement prohibition applies to individual medical policy premiums and not the reimbursement of COBRA premiums. 


For a copy of the Notice, visit: http://www.irs.gov/pub/irs-drop/n-15-17.pdf

 



This HR Alert is intended to provide a summary of significant developments to clients and friends. It is intended to be informational only and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under certain jurisdictions.


 

 

HR Alert

May 2015


The IRS recently released Revenue Procedures 2015-27 and 2015-28, which modify, but do not replace, the existing Employee Plans Compliance Resolution System (EPCRS) in Revenue Procedure 2013-12 (the “2013 Revenue Procedure”). This HR Alert summarizes the changes included in Revenue-Procedure 2015-27. The July HR Alert will include a summary of the modifications set forth in Revenue-Procedure 2015-28. 

Generally, the EPCRS is available for plans intended to satisfy the tax qualification requirements under Code Section 401(a), including 401(k) and 403(b) plans, Simplified Employee Pension (SEP) plans, Savings Incentive Match Plan for Employees (“SIMPLE IRA”) plans, and salary reduction SEP (“SARSEP”) plans. The EPCRS allows employers to preserve a plan's tax-favored status by correcting failures with varying degrees of IRS involvement. It includes the self-correction program (SCP), Voluntary Correction Program (VCP), which requires a formal submission and approval by the IRS, and Audit Closing Agreement ("Audit CAP") for plans with failures discovered during IRS audit.
 
What Updates Are Included in Revenue Procedure 2015-27? 

The following provides an overview of some, but not all, of the updates included in Revenue Procedure 2015-27:
  • Correction of Overpayment Failures.  Depending upon the facts and circumstances, plan sponsors may no longer be required to secure overpayments from affected plan participants or beneficiaries. However, an overpayment correction must generally be consistent with EPCRS' correction principles, including requirements to notify affected participants and beneficiaries that certain overpayments are not eligible for tax-free rollover treatment. 
The IRS is seeking comments relating to the recoupment of overpayments through July 20, 2015 and has indicated that it intends to further modify the 2013 Revenue Procedure as it relates to this topic.
  • Self-Correction of Code Section 415(c) Failures. Plan sponsors can now use SCP to correct certain recurring excess annual additions if they act within a specified time period. Under the new guidance, the timeframe to distribute excess annual additions is extended from 2-1/2 to 9-1/2 months after the end of the plan’s limitation year.
  • Voluntary Compliance Program (VCP) Fees. 
    • Required Minimum Distributions. Under the new guidance, reduced fees may apply if a plan’s sole failure is late payment of required minimum distributions that affect 300 or fewer plan participants. Such fee is reduced to $500 if 150 or fewer participants are affected and $1,500 if 151 to 300 participants are affected.
    • Participant Loans. Plan sponsors may also be eligible for reduced fees if the number of participants with loans that do not comply with Code Section 72(p) does not affect more than 25% of participants in a year. The reduced fees range from $300 (for 13 or fewer affected participants) to $3,000 (for more than 150 affected participants). 
  • Updated Submission Forms. Appendix C (including Appendix C Schedules) and Appendix D are no longer part of the 2013 Revenue Procedure. Applicants who want a written acknowledgement letter from the IRS for their VCP submission must include a partially completed IRS Letter 5265, which replaces Appendix D. Additionally, if a VCP applicant wishes to use model VCP documents, it must submit Form 14568 (and, if applicable, Forms 14568-A and -I).
When Do the Changes In Revenue Procedure 2015-27 Become Effective? 

Changes under Revenue Procedure 2015-27 are effective beginning July 1, 2015.

For a copy of Revenue Procedure 2015-27, visit http://www.irs.gov/pub/irs-drop/rp-15-27.pdf


Building Better Business Benefits

 
Anne Tyler Hall
ERISA & Benefits Attorney
3355 Lenox Road
Suite 750
Atlanta, GA 30326
(678) 439-6236 (Office)
(404) 861-7441 (Cell)
athall@hallbenefitslaw.com
www.hallbenefitslaw.com

       
 
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