Category Archives: Investing and fiduciary requirements

401k and 403b Plan Reminders for 2012

Why do I have to get my census and reports to my plan adminstrator in January?  There are a couple of reasons, and failure to comply can cause significant penalties.  Please make sure to get your year-end reporting done as soon as possible, but no later than January 31. – Reeve

EXCESS DEFERRALS- for the 2012 calendar year, employee deferrals cannot exceed $17,000, or $22,500 for those over age 50 using “cathc-up”provisions.  Any excess Deferrals must be distributed to the participant, with related earnings by April 15, 2013.  Faliure to do so may cause loss of tax deferred status for the entire plan.

ANNUAL ADDITIONS- The same rule applys for the overall contriutions, which are limited in 2012 to $50,000 or 100% of the employees compensation, whichever is less.  Corrective Distributions are due by March 15, 2013.

PLAN TESTING- Any changes that are necessary, should your plan not be a safe-harbor plan, and fail the ACP/ADP testing, are also due by March 15, 2013.  If you are a safe-harbor plan, you hae nothing to worry about here.

FORFEITURE ACCOUNTS must be allocated  by a certain date, either to future contriutions, or across current employees.

FORM 5500 is due by July 15 for most plans.

Medical Loss Ratio payments of $1.5 Billion made

New York, NY, December 5, 2012—Consumers saw nearly $1.5 billion in
insurer rebates and overhead cost savings in 2011, due to the Affordable
Care Act’s medical loss ratio provision requiring health insurers to
spend at least 80 percent of premium dollars on health care or quality
improvement activities or pay a rebate to their customers, according to a
new Commonwealth Fund report.
Consumers with individual policies saw substantially reduced premiums
when insurers reduced both administrative costs and profits to meet the
new standards. While insurers in the small- and large-group markets
achieved lower administrative costs, not all of these savings were
passed on to employers and consumers, as many insurers increased profits
in these markets.

 

“The medical loss ratio requirements are intended to give insurers an
incentive to be more efficient and use most of their premium dollars
for patient care,” said Sara Collins, Commonwealth Fund Vice President
for Affordable Health Insurance. “This report is encouraging, as it
demonstrates that these new rules are improving value for people buying
health insurance on their own, which has traditionally been very
challenging. However, it will be crucial to monitor insurers’ responses
to this regulation over time to ensure that all purchasers and consumers
benefit from the savings the law is designed to encourage.”

 

The new report, Insurers’ Responses to Regulation of Medical Loss
Ratios, by Michael McCue of Virginia Commonwealth University and Mark
Hall of Wake Forest University, looks at how insurers selling policies
for individuals, small-employer groups (up to 100 workers), and
large-employer groups (more than 50 or 100 workers, depending on the
state) in every state reacted to the Affordable Care Act’s medical loss
ratio requirement between 2010, the year just before the new rule took
effect, and 2011, the first year the rule was in place. The authors find
that in the individual insurance market, improvements were widespread:
39 states saw administrative costs drop, 37 states saw medical loss
ratios improve, and 34 states saw reductions in operating profits. Some
states stood out for significant improvements. In New Mexico, Missouri,
West Virginia, Texas, and South Carolina, medical loss ratios improved
10 percentage points or more, while administrative costs dropped $99 or
more per member in Delaware, Ohio, Louisiana, South Carolina, and New
York.

 

However, the report finds that in small- and large-group markets,
medical loss ratios were largely unchanged, and while spending on
administrative costs dropped, profits increased. For example, in the
small-group market, administrative costs were reduced by $190 million,
profits increased by $226 million, and the medical loss ratio remained
at 83 percent, unchanged from 2010. In the large-group market, insurers
reduced administrative costs by $785 million, increased profits by $959
million, and kept their medical loss ratio at 89 percent, also unchanged
from 2010.

The authors note that while insurers in the individual market have a
less stringent medical loss ratio requirement—80 percent, as opposed to
85 percent in the large-group market—their traditionally higher overhead
costs and lower medical loss ratios mean they have to work harder to
reach the new standard. As a result, these insurers lowered both
administrative costs and profit margins, therefore reducing growth in
premiums.

Conversely, insurers in the small- and large-group markets generally
already have medical loss ratios in the range of the required 85
percent, so while they reduced administrative costs, they had the option
of turning those cost savings into profits instead of passing them
along to consumers. In light of rising profits and falling
administrative costs, the authors suggest it is possible insurers took
profit increases in the small- and large-group markets to offset the
reduced profits in the individual market. And because many insurers sell
policies in all three markets, any reduction in administrative costs
could have been spread across all of a given insurer’s lines of
business.

The Affordable Care Act aims to expand health insurance coverage to
almost all Americans while improving health care quality and reducing
costs. According to the new Commonwealth Fund report, the law’s medical
loss ratio provision is directed specifically at controlling costs by
attempting to restrain insurers’ spending on profits and administrative
expenses, with the hope that lower overhead will result in lower
premiums.. The authors conclude that stronger measures—like rate
regulation, tighter loss ratio rules, or enhanced competitive
pressures—may be needed to ensure that these administrative costs are
reduced in all markets and savings are passed along to consumers.

Details of W2 reporting requirements for 2012

One of the new Health Care Reform requirements obligates employers to
report the aggregate cost of applicable employer-sponsored health care
coverage on an employee’s Form W-2.

Affected employers

Although
the Affordable Care Act imposed this requirement for all employers in
2011, the Internal Revenue Service (IRS) made it optional for all
employers for 2011 because necessary guidance was not available early
enough in 2011. Beginning with 2012, however, this reporting is no
longer optional for “large” employers (defined below). Reporting remains
optional for employers that are not large employers until the IRS
issues additional guidance.

For purposes of this requirement, a
“large” employer is an employer that was required to file at least 250
Forms W-2 for the preceding calendar year. For the initial reporting
required on 2012 Forms W-2, an employer that filed at least 250 Forms
W-2 for 2011 must report the cost of employer-sponsored health care
coverage on all employees’ Forms W-2 for 2012, even if the employer
files fewer than 250 Forms W-2 for 2012. An employer that files at least
250 Forms W-2 for 2012 will be required to report the cost of
employer-sponsored health care coverage on all employees’ Forms W-2 for
2013, regardless of the number of 2013 Forms W-2 the employer is
required to file.

It is important to note that “large employer”
status for this reporting requirement is based solely on the number of
Forms W-2 filed by the employer, not the number of employees or
full-time equivalents the employer had or has at any point during the
preceding or current calendar year. This 250 Form W-2 threshold is based
on the Internal Revenue Code requirement that an employer filing at
least 250 Forms W-2 for the current year must electronically file those
Forms W-2. Note also that an employer with a large number of seasonal or
temporary employees may end up subject to this reporting requirement
even though the employer never has 250 full-time employees during the
year. Similarly, an employer with high employee turnover may end up
subject to this reporting requirement even though the employer never has
250 employees at any one time during the preceding calendar year.

Health care coverage subject to Form W-2 reporting

In
general, “applicable employer-sponsored coverage” subject to the
reporting requirement is coverage under any group health plan offered
and sponsored by the employer that is not taxable to the employee. This
includes:

  • Group medical and prescription drug coverage (whether fully insured or self-insured by the employer)
  • Dental
    coverage or vision coverage if the coverage is an integral part of the
    medical coverage and cannot be elected or declined by the employee
    separately from the medical coverage
  • Employer contributions to a flexible spending account (FSA), but not including “flex credits” that an employee can elect to receive in cash or apply as contributions to a Code Section 401(k) plan
  • Employee
    Assistance Programs (EAPs), wellness programs, and on-site medical
    clinics, but only if the EAP, wellness program, or on-site clinic is a
    “group health plan” for HIPAA purposes and the employer charges
    a COBRA premium to continue the EAP, wellness program or on-site clinic
    coverage during the COBRA continuation coverage period
  • Specific
    disease or illness coverage (such as cancer insurance) or hospital
    indemnity or other fixed indemnity insurance if the employer pays for
    any part of the coverage on a non-taxable basis or the employee pays for
    coverage on pre-tax basis
  • Retiree health coverage, but only if the employer otherwise must issue a Form W-2 to the retiree

The following types of coverage are not subject to Form W-2 reporting:

  • Health reimbursement accounts (HRAs) (until further guidance is issued)
  • Employer or employee contributions to a health savings account (HSA)
  • Employer or employee contributions to a multiemployer group health plan (union-affiliated health and welfare plan)
  • Dental coverage or vision coverage that an employee can elect or decline separately from the medical coverage
  • Employee
    salary reduction contributions to a flexible spending account (FSA),
    including “flex credits” that an employee can elect to receive in cash
    or apply as contributions to a Code Section 401(k) plan
  • EAPs, wellness programs and on-site medical clinics that are not “group health plans” for HIPAA purposes or the
    employer does not charge a COBRA premium to continue the EAP, wellness
    program or on-site clinic coverage during the COBRA continuation
    coverage period
  • Specific disease or illness coverage (such as
    cancer insurance) or hospital indemnity or other fixed indemnity
    insurance if the employer includes any employer contribution in the
    employee’s taxable income or the employee pays for coverage on an
    after-tax basis
  • Coverage for accident or disability income insurance, including supplemental disability insurance
  • Liability insurance, including general liability and automobile insurance
  • Worker’s compensation or similar insurance
  • Credit-only insurance

Aggregate cost to be reported

The
aggregate cost of “applicable employer-sponsored coverage” to be
reported on employees’ Forms W-2 includes both amounts paid by the
employer and amounts paid by the employee, regardless of whether the
amounts are paid on a pre-tax or after-tax basis. This includes any
employee contributions made on a pre-tax basis through a Code Section
125 Cafeteria Plan.

The reportable aggregate cost also includes
amounts paid by the employer and employee for coverage for the
employee’s spouse, dependent, and (if offered) domestic partner. The
cost for domestic partner coverage must be reported on the employee’s
Form W-2 even though coverage for the employee’s domestic partner who is
not a dependent is taxable to the employee.

Calculation of aggregate cost to be reported

Employers may calculate the aggregate cost to be reported on Form W-2 using one of the following methods:

  • The COBRA applicable premium method

Under
this method, the reportable aggregate cost is equal to the applicable
COBRA premium for the period (not including the permissible COBRA
administrative fee). An employer may use this method whether the group
health care plan is fully insured or self-insured.

  • Premium charged method (for insured programs only)

This
method is available only for employers that provide group health care
benefits through a fully insured program. The reportable aggregate cost
is the premium charged by the insurer for the level of coverage elected
by the employee (for example, single or family coverage, as applicable).

  • Modified COBRA premium method

This
method is available only to employers that either subsidize COBRA
premiums or base the current year’s COBRA premium on the prior year’s
COBRA applicable premium. If the employer subsidizes the COBRA premium,
such that the COBRA qualified beneficiary’s premium is less than the
actual premium cost, the employer may determine the reportable aggregate
cost using a reasonable good faith estimate of the COBRA premium. If
the employer uses the prior year’s COBRA applicable premium as the COBRA
premium for the current year, the employer may use prior year’s COBRA
applicable premium for reporting purposes.

An
employer may use different methods for different plans but must use the
same method for all employees receiving coverage under a plan.
Additional options are also available for employers that determine
employee contributions based on composite rates.

The aggregate
cost reported on an employee’s Form W-2 must reflect any increase or
decrease in cost during the year. The reported aggregate cost must also
reflect any changes in coverage an employee may make during the year,
for example, enrolling in coverage, dropping coverage or switching from
single coverage to family coverage.

The aggregate cost reported
must be based on a calendar year, even if the employer is using a
12-month period that is not the calendar year for purposes of
determining COBRA applicable premiums.

Reporting for former employees

If
an employee terminates during the year and the employer continues to
provide coverage after termination of employment, through COBRA or
otherwise, the employer may use any reasonable method to report the
aggregate cost of coverage as long as it does so consistently for all
terminated employees receiving post-termination coverage. If the
terminated employee requests a Form W-2 before the end of the calendar
year in which the employee terminated, the employer is not
required to report the aggregate cost of applicable employer-sponsored
coverage on the Form W-2 issued at the employee’s request, and the
employer is not required to issue another Form W-2 at the end of the calendar year to report that cost.

If
an employer is not required to issue a Form W-2 to an individual who is
receiving employer-sponsored coverage, such as a retiree or other
former employee who did not receive any reportable compensation during
the calendar year, the employer is not required to provide a Form W-2
solely to report the aggregate cost of the employer-sponsored coverage.

Actual reporting on Form W-2

The aggregate cost of applicable employer-sponsored coverage is reported in Box 12 using Code DD.

Planning considerations

The
IRS has stressed that the reporting of this cost is informational only
and has no impact on whether the reported amounts are or would be
taxable. The stated purpose of this mandated reporting is to provide
useful and comparable consumer information to employees on the total
cost of their health care coverage.

This new reporting obligation
offers employers an opportunity to highlight the cost of the benefits
they are providing to their employees. Many, if not most, employees have
no idea of the true total cost of the health care coverage they receive
through their employer-sponsored group health care plan. They usually
only see the employee contribution they are required to pay, but do not
appreciate the additional amount paid by the employer to provide this
benefit.

Employers should consider generating an employee
relations benefit from this new reporting obligation and its attendant
administrative burdens. An employee education program timed for delivery
near the end of January 2013, to coincide with delivery of the 2012
Forms W-2, that specifically focuses on the health care coverage offered
by the employer can illustrate to employees this important tax-free
benefit the employer provides.

For assistance or further information, please contact:

Antoinette M. Pilzner
248.220.1341
apilzner@mcdonaldhopkins.com

Saver’s Tax Credit for IRA’s

Are you eligible for a tax credit when you contribute to your retirement plan?

Certain lower income contributors to various tax-advantaged
plans—IRAs, 401(k) plans, 403(b) tax sheltered annuities, SIMPLE IRAs, Section
457 governmental plans and salary reduction SEPs—receive a nonrefundable tax
credit in addition to any other tax benefits resulting from participation. The
tax credit, being nonrefundable, applies only to the extent the client has an
income tax liability. Thus, a client with no federal income tax
liability—despite otherwise being eligible for a Saver’s Tax Credit—would not
receive it.

The tax credit is equal to the applicable percentage shown
in the following chart multiplied by the total qualified retirement savings
contribution, reduced by distributions received from such plans during the prior
two taxable years. The maximum Saver’s Tax Credit for any individual is $2,000.

Image 1042

New Healthcare Coverage Option Comes to SC’s 900,000 Uninsured Citizens

Reeves note-  COOPS will be part of the Exchanges which begin January 1, 2014.  Open enrollment should start next October.
Consumers’ Choice Health Plan (CCHP) is the new healthcare CO-OP
opening here in South Carolina. Like electric CO-OPs, CCHP will have a
governing board made up mostly of subscribers/members who will insure
the plan operates with the consumers in mind.
CCHP, a Consumer Operated and Oriented Plan (CO-OP) was funded with a
start-up loan from the Affordable Care Act legislation. The acronym
CO-OP was created by the legislation. Community organizations, business
leaders, health industry professionals and technology experts came
together and applied for funding to start the health insurance CO-OP in
South Carolina. CCHP received approval and funding in March of 2012.
Available to anyone, CO-OPs are designed for small businesses and
taxpayers with household incomes between 100 percent and 400 percent of
the Federal Poverty Level (FPL). These taxpayers will be eligible for a
subsidy to offset the cost of the premium. Small businesses will be
eligible for tax credits for offering coverage.

So what will be different about Consumers’ Choice?

  1. It is the first health insurance CO-OP in the south and the only HHS approved plan in the state of South Carolina.
  2. Members will have the majority seats and voting power on the
    governing board of directors.  Health providers will also have seats and
    voting power.
  3. Financial incentives will be made to members and providers who work closely together for sustained and better health.
  4. It is non-for-profit.  Profits will go back into the plans to maintain affordability.
  5. Visit us online at: www.cchpsc.org

Here is a link to our federal announcement: http://www.healthcare.gov/news/factsheets/2011/08/exchanges08122011a.html

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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