June 10, 2016

Beware The Schemes
Over the past few months, we have come across a new version of an old scheme that purportedly helps clients drive down insurance costs and is 'cost neutral' to the company.

Historically, these plans utilize Section 125 of the tax code, which allows employees to pre-tax insurance premiums, which lowers the taxable wages of the employees while saving the employer FICA taxes. Because the employees have less taxable income, they save on taxes, and thus have greater take-home pay.

And while this traditional approach is totally sound and legal, insurance agents love it because the employee has more take-home pay, which of course is used to purchase more insurance products! Hence the very foundation of funding work-site insurance products the likes of Aflac. 

Recently, at least two regional insurance agencies have been marketing a new version of this and couching the tax savings in a 'wellness plan.' The plan works something like this: 

Employees make a significant pre-tax contribution into a self-insured group plan that is basically a 'wellness' program. The contribution amounts can total up to half the employees' gross wages! The wellness plan requires that the employee engage in wellness activities, i.e. watch a video on diabetes management. The 'reward' is coverage under a Health Reimbursement Plan (HRA), which is also a self-funded plan. Employees can then reward themselves on a non-taxable basis for their premiums that were paid to the wellness plan.

The kicker is that the employee now has additional funds to purchase 'affordable insurance products,' while not affecting their take-home pay. And the employer saves substantially more on FICA because the taxable wage base of the employee population has decreased dramatically.

In short, the employee is pre-taxing up to half their income, and then getting it back on a tax-free basis. If it sounds too good to be true, it likely is. 

So why haven't you heard about this? And why haven't we heard about this?   The argument is that there have been changes in the law about which not even your old veteran agent knows. And in some cases, you must sign a confidentiality agreement to receive the advice. Of your old veteran agent is NOT invited to the presentation.

Here's what's legally wrong with this: 

Last October, the Office of Chief Counsel specifically noted that HRA accounts can only reimburse group health plan premiums on an after-tax basis and that any reimbursements received from a wellness arrangement are taxable as income. This means that the employer is exposed to back taxes for failing to report taxable income. Legal agents also point to 'secondary liability,' under which the employer becomes liable for the employees' portion of FICA taxes, which of course cannot be collected from the employee retroactively.

Buyer beware. If you come across anyone marketing this arrangement please let us know. We would love to sit in on the presentation. 

Thank you for your continued support of jweinland benefits!

Jason Weinland

j weinland group benefits
The New Republican Response to the ACA
Rep. Pete Sessions and Sen. Bill Cassidy  introduced legislation last month calling for replacing elements of the Affordable Care Act. A House task force established by Speaker  Paul Ryan is expected to follow with more health-care proposals. These Republican health plans are generally referred to as "replacements" for the ACA-in the spirit of "repeal and replace"- as though they would accomplish the same objectives in ways that conservatives prefer. But the proposals are better understood as alternatives with very different goals, trade-offs, and consequences. Whether they are "better" or "worse" depends on your perspective.
To boil down to the most basic differences: The central focus of the Affordable Care Act is expanding coverage and strengthening consumer protections in the health insurance marketplace through government regulation. By contrast, the primary objective of Republican plans is to try to reduce health-care spending by giving people incentives to purchase less costly insurance with more "skin in the game," with the expectation that they will become more prudent consumers of health services. They also aim to reduce federal spending on Medicare and Medicaid and the federal government's role in both programs. Elements of the ACA were designed to reduce costs, such as the law's Medicare payment reforms, and elements of Republican plans such as tax credits aim to expand access to insurance, but the primary aims of the ACA and the Republican plans differ.
In public discussion the architects of these Republican plans often gloss over their differences from the ACA. But it is not as if they can somehow achieve the same things the ACA achieves, just in a way that involves less spending and regulation.  The differences between Republican and Democratic objectives make it tricky to fairly evaluate the GOP proposals. With the ACA now the status quo, should Republican plans be evaluated against whether they maintain or don't maintain ACA coverage gains and insurance protections? Should they be evaluated on how well they achieve their own objectives-promoting consumer choice and lower-cost insurance plans, reducing marketplace regulation, and reducing federal spending and the federal role in health care? Should GOP proposals and the ACA both be assessed against general criteria pretty much everyone in health care uses, such as how well they improve access and quality, and control costs? All of these metrics can be used, but conservatives and liberals are likely to weigh them differently.
There are many ideas that conservatives have favored embodied in the ACA, just as there are ideas in Republican plans that will be palatable to Democrats. But fundamentally, Democrats could not cover almost everyone, while ensuring that they get comprehensive benefits and that sick people were protected in a market that had excluded them and at the same time achieve Republican goals. In the same way, Republicans cannot deregulate, reduce spending and the federal role, give consumers more skin in the game and all the while achieve Democratic goals. There is an inherent tension between the objectives each side wants in health reform.
Karl Rove recently wrote in The Wall Street Journal that " Republicans must campaign on credible, substantive alternatives to ObamaCare." That seems fair enough. But health-care experts, the media, and architects of health-care proposals can do more to make it clear that the ACA and Republican plans are not different means to the same ends but means to different ends-each legitimate depending on one's political and policy priorities, and each with their own trade-offs and consequences for the public.
2016 Overtime Law Overview

On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor's final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers' wallets, and will go a long way toward realizing President Obama's commitment to ensuring every worker is compensated fairly for their hard work.

In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards. Consistent with the President's goal of ensuring workers are paid a fair day's pay for a hard day's work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA's intended overtime protections are fully implemented.

The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2015 ( 80 FR 38515) and invited interested parties to submit written comments on the proposed rule at www.regulations.gov by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule.

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:
  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The effective date of the final rule is December 1, 2016.
The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.
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