Financial Conflict of Interest in the Eighth Circuit: Trigger of a Less Deferential Standard of Review or Mere Factor in Determining Plan Administrator Abuse of Discretion?

It is well-established under the Employee Retirement Income Security Act of 1974 (“ERISA”) that when an employee benefit plan grants the plan administrator discretion to decide questions of eligibility for benefits or to construe plan terms, judicial review of the plan administrator’s denial of benefits is generally limited to the deferential abuse of discretion standard — pursuant to which a plan administrator’s decision is affirmed if it is reasonable, i.e., a reasonable person could have reached a similar decision given the evidence. Earlier this year, the United States Court of Appeals for the Eighth Circuit, in Boyd v. ConAgra Foods, Inc., 879 F.3d 314 (8th Cir. 2018), clarified when a less deferential standard of review might nonetheless apply in the review of denial of plan benefits under ERISA Section 502(a)(1)(B).

In Boyd, a former executive argued his claim for benefits under a severance plan — the terms of which afforded the plan administrator exclusive authority to interpret the plan and decide all questions of eligibility for benefits — had been wrongly denied. The former executive argued a standard of review that was less deferential than the abuse of discretion standard should apply. Specifically, the former executive argued for a “sliding scale” standard of review, in accordance with Woo v. Deluxe Corp., 144 F.3d 1157 (8th Cir. 1998) and its progeny — which held that a less deferential standard of review applied where a claimant showed a conflict of interest or a serious procedural irregularity by the plan administrator that amounted to a breach of fiduciary duty. The former executive predicated his argument on the financial conflict of interest in the case — i.e., ConAgra’s role as both the plan administrator who determined eligibility for benefits and the plan sponsor who was obligated to pay for benefits awarded under the plan — as well as alleged procedural irregularity — a ConAgra human resources employee’s alleged misstatement during the administrative claim review process concerning the former executive’s continued authority over a corporate program.

The Boyd Court noted that pursuant to the holding in Metro Life Ins. v. Glenn, 554 U.S. 105 (2008), a financial conflict of interest is merely a factor that a court should consider in determining whether a plan administrator has abused its discretion — not a basis for applying a less deferential standard of review. The Court explained that — although apparently substantially similar — a less deferential standard of review versus consideration of financial conflict of interest in conjunction with an abuse of discretion standard of review were distinct concepts. The Court explained that Glenn abrogated Woo to the extent Woo allowed a less deferential standard of review based on a mere financial conflict of interest. Finally, the Court noted that the Eighth Circuit had yet to resolve the impact of Glenn on Woo to the extent the latter allowed a less deferential standard of review based on procedural irregularity. The Boyd Court did not reach that issue, based on its conclusion that the alleged misstatement by the human resources employee to the former executive did not implicate the plan administrator’s procedures in reviewing the claim for severance benefits.

Importantly, the Boyd Court explained that the weight afforded to a financial conflict of interest would depend on the facts of the case, with the conflict being afforded little weight — perhaps almost no weight — where the record contained evidence concerning the procedural safeguards surrounding administration of the plan in question.

Best Practices: Plan sponsors should have employee benefits counsel provide annual fiduciary training to plan administrative committees. Plan sponsors who can show their administrative committees have been trained to administer a plan in accordance with its terms for the sole benefit of participants — and without regard to any consideration of plan sponsor financial liability — will be in the best position to have denied claims reviewed under the deferential abuse of discretion standard, with any financial conflict of interest treated as a mere factor that is afforded minimal weight.

Was Your Employee Benefit Plan Selected For Examination? Don’t Panic!

Each year, hundreds of retirement plans are examined by the Internal Revenue Service (IRS) and Department of Labor (DOL).  The agencies also examine other kinds of employee benefit plans for compliance with statutes and regulations with respect to which they have enforcement authority.  In particular, the DOL has increased its examinations of group health plans in recent years in connection with the Employee Benefit Security Administration’s Health Benefits Security Project.  The agencies are particularly focused on compliance issues that pose the greatest potential risk to the largest numbers of employees.

Be Prepared

As with any situation you’d rather avoid, being prepared is always the best way to ensure that an examination isn’t any worse than your worst expectations.  With enough preparation, even your worst expectations shouldn’t be so bad.  A significant element of being prepared is self-auditing.  Regularly.

Focus particularly on the most common compliance issues.  For tax-qualified retirement plans examined by the IRS, these tend to involve failures related to (among other things) timely amending plan documents, administering compensation and eligibility rules consistent with plan terms, and making impermissible distributions.  Even if your plan financials are audited annually by a third party (for example, ERISA-covered retirement plans), do your own spot-checking for common trouble-makers like misinterpretations of eligibility rules and misapplication of the definition of compensation.

Both the IRS and the DOL publish self-audit tools.  The IRS’ compliance checklists, guide to common plan requirements, and “fix-it” guides are practical resources for 401(k) and 403(b) plan sponsors.  These include lists and explanations of specific Internal Revenue Code requirements for retirement plan tax-qualification and step-by-step ways to correct certain mistakes that could otherwise cause a plan to be disqualified.  The DOL’s self-compliance tool for group health plans may be especially helpful for plan sponsors who’ve not had a group health plan examination in the last couple of years.

Understand the Examination Process

Both the IRS and DOL publish examination guides.  The IRS’ examination process guide includes links to fairly detailed explanations of each of eleven stages of a typical examination.  The DOL’s initial investigation guidelines for group health plans are also readily available and will give group health plan sponsors some insight into the examination process.

Depending on whether your plan was selected for examination based on purely random selection, participant complaint(s), referral from another government agency, an anomaly in the plan’s annual report, or a particular market segment focus the agency’s national office has at the time, the examination process might veer significantly from the usual.  Also, if your plan has previously corrected failures under the IRS’s Employee Plans Compliance Resolution Program, be prepared to demonstrate that the full correction was made, including corrective action taken to prevent recurrence of the same failure.

Some examinations will involve on-site visits and others will not.  Also, some agents will want to communicate solely via fax or regular mail and others will permit email communication.  Many agents these days do not work out of an office every day and, therefore, will be difficult to reach by telephone.  Be prepared to be flexible and accommodating but do not hesitate to ask for the same from your assigned agent – for example, if you need more time to respond fully to an information or document request.

The examination will conclude with either a clean bill of health or (more likely) identification of one or more errors that need to be corrected.  Make sure you fully understand the error(s) identified as well as the proposed correction(s) and any penalties.  If you disagree with the agent’s conclusions, understand your appeal rights and those procedures.

Keep It In Perspective

The government’s objective in any plan compliance examination is to identify compliance failures.  It never pays to deliberately ruffle the feathers of a public servant whose job it is to find your mistakes.  Be professional and considerate and expect the same conduct from the agent.  Among other things, this means responding by whatever deadline is given (extended or otherwise) with documents and information organized in a way that makes it easy for the agent to do his or her job.

In any event, keep in mind that total compliance is virtually unheard of and every failure has a resolution.

IRS Reduces HSA Contribution Amount for Current Year

In 2017, the IRS released the 2018 inflation-adjusted figures for contributions to Health Savings Accounts (HSAs).  The contribution limits for HSAs associated with High Deductible Health Plans was increased to $3,450 for individuals with self-only coverage and to $6,900 for individuals with family coverage.  In December, the President signed the tax reform bill commonly known as the Tax Cuts and Jobs Act (the Act).  The Act included a change in the method used to calculate inflation.  As a result of that change, the IRS recently released Revenue Procedure 2018-18 which provides for a small reduction in the 2018 contribution limit for individuals with family coverage.  The 2018 contribution limit for individuals with family coverage has been reduced to $6,850, down $50 from the number released in 2017.  The individual limit did not change.

 

Excess HSA contributions are subject to a 6% excise tax imposed on the holder of the HSA, the employee, if not corrected and refunded before the last day for filing the employee’s federal income tax return (including extensions) for that calendar year.  Plan Sponsors and healthcare vendors should update their enrollment materials and confirm new enrollees do not contribute more than the maximum limit for 2018.  In addition, payroll departments and vendors should adjust the limits in their systems to reflect the lower contribution limit.  Finally, we recommend that payroll departments and vendors audit their systems to locate participants who may have already contributed more than the maximum amount for 2018 and make arrangements for corrective refunds.

IRS Announces Heightened Scrutiny for Tax-Exempt Entities

The IRS division tasked with ensuring tax-exempt entities comply with relevant tax laws has announced that beginning in fiscal year 2018, it will focus on examining charitable organizations that show indicators of “private benefit or inurement.” Consequently, non-profit entities will want to review their business operations, hiring practices, and compensation packages to ascertain whether indicators exist and take steps to address any problematic characteristics apparent in such transactions or practices.

Private Benefit or Inurement = Loss of Tax-Exempt Status

Code § 501(c)(3) corporations and entities, operated exclusively for charitable purposes, are exempt from federal taxation under Code § 501(a) if no part of the net earnings of the corporation 1) inures to a private shareholder or individual who is in a position to control the charitable entity or 2) benefits a private individual or class of individuals. The private benefit and inurement prohibitions preclude employees and officers of an organization, as well as private individuals or entities, from unfairly or unreasonably benefiting from a charity’s benefits, income, or assets.

A finding of private benefit or inurement — no matter how small — jeopardizes the tax-exempt status of a charitable organization. In addition, the IRS imposes significant financial penalties upon those who approve and/or benefit from a prohibited inurement. The following examples illustrate the types of transactions that have proven fatal to an organization’s exempt status:

• Excessively large salaries to officers or employees. While salary may have been reasonable, other payments in the form of loans, disguised distributions, and benefits from net earnings made to the individual and his family disqualified the organization for tax-exempt status. 823 F.2d 1310 (9th Cir. 1987)

• The provision of facilities or office space to private corporations at less than fair market value. IRS Private Letter Ruling 201017078

• Charitable hospital corporation’s payment of administrative, service, medical, and professional expenses of physician medical practice. Tax Court Memo 1974-273

• Interest-free, unsecured loans and payment of personal expenses on behalf of family in control of school. 228 Ct. Cl. 902 (1981)

• Federal income tax advantages and property tax reductions that indirectly benefited non-exempt partners with charitable organization providing affordable housing for low income and disabled individuals because the non-exempt partners were relieved of maintaining rents at a level sufficient to cover operating expenses that would otherwise have to be paid out of partnership capital. 58 F.3d 401 (9th Cir. 1995)

• Two-thirds of retired teachers’ legal defense fund membership were not low-income or disabled persons. 78 Tax Court 280 (1982)

• Charitable hospital restricting the use of its facilities exclusively to one physician group. Revenue Ruling 56-185

Ensuring Compliance for Maintaining Tax-Exempt Status

The most common type of inurement is the payment of excessive compensation to an employee or an officer. The inurement prohibition requires that the total compensation paid to an employee or officer be fair and reasonable. “Reasonable compensation” as defined by the IRS is “the value that would ordinarily be paid for like services by like enterprises under like circumstances.” Compensation items taken into account by the IRS when determining reasonableness include:

• All forms of cash and noncash compensation, including salary, fees, bonuses, severance payments, and deferred and noncash compensation;
• Payment of liability insurance premiums;
• All other compensatory benefits, whether or not included in gross income for income tax purposes;
• Taxable and certain nontaxable fringe benefits; and
• Foregone interest on loans.

The IRS will presume a compensation arrangement is reasonable if the compensation arrangement is:

1. Approved by an independent, authorized body of the organization;
2. Based upon appropriate comparability data on compensation paid by comparable organizations — exempt and taxable — for equivalent positions in the same or similar communities for similar services; and,
3. Adequately documented throughout the process — see Form 990 Instructions for detailed requirements.

As noted above, the IRS’s radar is currently programmed to find indicators of inurement and private benefit in the non-profit sector. Tax-exempt entities should carefully evaluate the potential implications that inurement and private benefit issues have on their operations. Internal evaluations into the fairness and reasonableness of compensation paid to the organization’s key employees and officers should encompass detailed documentation requirements set forth by the IRS. In addition, charitable organizations should examine any transaction with private individuals or with entities that involve the rental, sale, purchase, or use of the organization’s assets or facilities.

If you have questions concerning whether your organization shows indicators of inurement or private benefit, or for more general information on best business practices for non-profit entities, our team of experienced attorneys can assist in ensuring that your organization maintains its tax-exempt status.

DEDUCTIONS AND W-4S: EARLY 2018 RESPONSES TO TAX REFORM

The Tax Cuts and Jobs Act signed into law on December 22, 2017 is prompting some prudent early tax 2018 actions by both employers and employees related to employee benefits. Many employers are electing to make additional employer qualified plan contributions for the 2017 tax year when the employer’s tax rate may be higher and thereby yield a bigger tax benefit.   C corporations, in particular, whose federal income tax rate in 2017 was as high as 35%, may find worthwhile to make further 2017 plan contributions, such as discretionary profit sharing contributions, if permitted under their 401(k) plans (up to the general defined contribution plan limit of 25% of compensation), rather than make the same contributions for 2018 when the company’s tax rate is a flat 21%.  But in order to secure the deduction for the 2017 tax year, the deduction must be made by the April 17, 2018 deadline for filing the Form 1120 corporate tax return.  Provided, however, if the corporation timely files by April 17 for a 6 month extension, it can make a deductible qualified plan contribution for the 2017 year as late as October 15, 2018.

Pass-through entities such as partnerships, limited liability companies (LLCs) and S corporations may be less inclined to accelerate plan contribution deductions to 2017 since the individual tax rates that apply to their partners or shareholders were not dramatically lowered by the new Act.  But if they do desire to accelerate then they must make the contributions by the March 15, 2018 deadline for their Form 1065 (or Form 1120S for a S corporation), unless they similarly obtain a 6 month extension of the filing deadline.  If the 6 month extension is obtained timely, then a 2017 contribution would be due by September 15, 2018.

Note that the deadline for deducting a contribution allocable to 2017 for deduction purposes is based on the actual company tax return due date (as extended), rather than the date the company’s tax return is actually filed.   Also, the deadline for making the contribution for 2017 is not the same as the deadline for depositing employer contributions so as to be counted for 2017 under the “Section 415” rules for maximum “annual additions” to a qualified plan.  Under those rules, all annual additions, including employer contributions, must be made and deposited no later than 30 days  following the due date of the company tax return  (with extensions).  Therefore, if a C corporation extends the deadline for the 2017 federal income tax return to October 15, 2018, then the date for depositing its company contribution for purposes of counting it against the Section 415 annual addition limit is November 15, 2018.  In addition, these tax deduction timing rules should not be confused with the timing rules for required and permissive funding of defined benefit plans.

Finally, employees should be encouraged by employers to review and revise their declared W-4 allowances in early 2018 to account for the many individual tax changes made by the Act.  These include the tax rate changes, changes to allowable deductions for state and local taxes and mortgage interest and the elimination of the personal exemption coupled with the near doubling of the standard deduction from $6,500 to $12,000 for singles and from $13,000 to $24,000 for married couples.  To assist employees, the IRS issued new wage withholding tables in January, a new form W-4 on February 28th and an online withholding calculator to assist employees in revising their W-4 allowances (See www.irs.gov/newsroom/updated-withholding-calculator-form-w-4-released-calculator-helps-taxpayers-review-withholding-following-new-tax-law).  An employee’s refiguring of tax allowances and the revising of the net payable wage amount will both take into account, and have an important bearing on, the 401(k) deferral elections and other pretax (and post-tax) employee benefit deductions from pay that an employee may wish, or be able, to make.

Changes to VCP User Fees: A Holiday Gift That Some Plan Sponsors Would Rather Return

Benefit plan practitioners returned to their desks after the holidays to the surprising news that the Internal Revenue Service issued guidance that made sweeping changes to the user fees for the Internal Revenue Service’s Voluntary Correction Program (“VCP”).  (And notably more than one IRS agent has informally indicated they were surprised by the changes, which were almost immediately effective, as well!)

An often-used option under the IRS’s larger Employee Plans Compliance Resolution System (“EPCRS”), VCP allows plan sponsors experiencing operational and document failures with their tax-qualified plans to, within the bounds of the available guidance under Rev. Proc. 2016-51, submit such failures to the IRS and seek its blessing (in the form of a signed Compliance Statement) on a proposed correction method. In the post-determination letter landscape, VCP is seen as an increasingly important means to protect and ensure a plan’s qualification status.

One downside of the program, however, is its user fee. For submissions filed prior to January 2 of this year, such user fees were based on the number of plan participants, and could be as high as $15,000 for plans with over 10,000 participants.  As of January 2, user fees are based on plan assets, with a top user fee of $3,500 for plans with $10 million or more.

Great news for plan sponsors, right?

Not so fast. Besides the obvious pitfalls in the changes – the greatly reduced user fees in the range of $300-$500 for certain loan, required minimum distribution, and nonamender failures are no more—the feedback from sponsors of small plans has been resoundingly negative as the math does not work in their favor.  For example, a VCP filed prior to January 2 by a plan with 48 participants and between $500,001 and $10,000,000 in assets would have cost $750.  Going forward, it costs considerably more–$3,000, or a 400% increase.

But there is hope! At a recent conference of practitioners attended by representatives of the IRS, attendees were quick to voice their opinions, and were cautiously optimistic that they’re being heard.  An IRS official indicated that user fees were changed due to a prior ruling confirming that such fees are “user” fees versus “compliance” fees.  The IRS has interpreted this to mean that, by statute, such fees must closely align to the IRS costs for processing a VCP filing.  The cost of processing a VCP filing on behalf of a small plan is the same as processing a filing for a large plan, hence the streamlined table of user fees, with only minor concessions for smaller plans.  The official confirmed, however, that the IRS remains open to feedback on the structure (in particular, ideas for the way the fees can be adjusted to help small plans while still meeting statutory requirements) and is willing to taking a second look.

Meanwhile, many sponsors of small plans may decide to utilize the Self-Correction Program component of EPCRS rather than going through VCP to save the user fee, even though a self-correction isn’t always available based on the magnitude of a failure, and yields no Compliance Statement and the reassurance that goes with it.

As always, we will continue to monitor and advise of any further changes.

RECENT LEGISLATION WILL AFFECT 401(K) HARDSHIP DISTRIBUTIONS

Just a few weeks ago, the federal government avoided a potentially lengthy government shutdown when Congress passed and the President signed into law the Bipartisan Budget Act of 2018 (the “Act”). You may already know that the Act extends funding for the federal government until March 23, 2018. However, what you may not know is that hidden in the Act are provisions that will change some of the rules relating to hardship distributions from 401(k) plans.

Hardship Distributions from 401(k) Plans

The Internal Revenue Code (the “Code”) and associated regulations place restrictions on participants’ ability to withdraw their elective deferrals from 401(k) plans except in certain circumstances (e.g., reaching age 59 ½; termination of employment). One such exception is that a 401(k) plan is allowed to provide for “hardship distributions.” This means that in certain circumstances (and if the plan allows), an active employee participating in a 401(k) plan can withdraw his or her elective deferrals to pay for certain expenses.
Section 401(k) of the Code and the regulations thereunder place a number of rules and restrictions on hardship distributions. For instance, the distribution must be on account of hardship, meaning that it is pursuant to an immediate and heavy financial need and is necessary to satisfy that need. Immediate and heavy financial needs include things like certain medical care expenses, the cost to purchase a principal residence, certain tuition and educational expenses, the amount necessary to avoid eviction, certain burial or funeral expenses, and certain expenses to repair damage to a principal residence.

An employee that takes a hardship distribution is generally prohibited from making elective deferrals to the plan (or any other plan maintained by the employer) for at least 6 months following the hardship distribution. Also, hardship distributions are only permitted from certain accounts. Except for certain grandfathered amounts, they cannot be taken from the participant’s income on elective deferrals, qualified nonelective contributions (“QNECs”) or qualified matching contributions (“QNECs”). Furthermore, before a hardship distribution can occur, the employee must have taken all other available distributions from the plan (and other plans maintained by the employer), such as a loan (if available).

What Changes Does the Act Make to Hardship Distributions?

First, the Act will eliminate the 6-month suspension on elective deferrals following a hardship distribution. It requires the Secretary of Treasury to issue regulations removing the 6-month restriction on elective deferrals. The Secretary has up to one year to complete this task. Furthermore, the Act amends Section 401(k) of the Code to allow for hardship distributions to include QNECs, QMACs, and income on elective deferrals. Lastly, the Act removes the requirement to take available loans before taking hardship distributions. These changes are effective for plan years beginning after December 31, 2018.

What Should Plan Sponsors Do?

Be on the lookout for new regulations and guidance from the Secretary of Treasury, and contact the Jackson Lewis attorney of your choice for assistance. We can help you amend your plan document, and also work with you and your third-party administrators to implement the administrative changes needed for 2019. If your plan does not currently provide for hardship distributions, but you would like to add that option, we can help you with that too.

CONGRESS AGAIN ATTEMPTS TO ADDRESS MULTIEMPLOYER PLAN CRISIS IN BIPARTISAN BUDGET ACT

Under the Employee Retirement Income Security Act (“ERISA”), as amended by the Multiemployer Pension Plan Amendments Act (“MPPAA”), an employer that has assumed an obligation to contribute to collectively-bargained and jointly-administered defined benefit pension plans ( “multiemployer plans”) is liable for its allocable share of any underfunding upon the permanent cessation of that obligation. This “withdrawal liability” has become a significant issue since 2008 due to a confluence of factors, including the economic and investment impact of the recession, historically low interest rates, declining plan participation, and an increase in the number of retirees.

A report published in December 2017 by the U.S. Chamber of Commerce described the situation as “bleak.” 114 multiemployer plans (out of approximately 1,400 in total) are underfunded by $36.4 billion. The Pension Benefit Guaranty Corporation (“PBGC”), the Federal agency with regulatory and enforcement authority over MPPAA, and that backstops multiemployer plan benefits, is itself in financial distress. The PBGC is projected to be insolvent within 5 years, which could wipe out the retirement security of millions of Americans.

Congress has attempted to address this problem numerous times, first with the enactment of MPPAA (which created the concept of withdrawal liability) in 1980. Subsequent attempts have included the Pension Protection Act of 2006 (which attempted to stabilize and improve multiemployer plan funding) and the Multiemployer Plan Reform Act of 2014 (which created tools for multiemployer plans to stave off insolvency). None have been particularly successful, and the multiemployer crisis has worsened.

The most recent such attempt is the Bipartisan Budget Act of 2018, which became law on February 9, 2018. The Act establishes the “Joint Select Committee on Solvency of Multiemployer Pension Plans,” the goal of which is to improve the solvency of both multiemployer plans and the PBGC.

The Committee is tasked with generating a “detailed statement of the findings, conclusions and recommendations” of the joint committee, as well as drafting proposed legislation to carry out these recommendations. Its membership will be comprised of 16 members, appointed equally by the majority and minority leaders of both the Senate and the House of Representatives.

We will continue to monitor this evolving situation.

Changes to ERISA’s Disability Claims Regulations Coming April 1

Employers who offer short-term and long-term disability plans governed by the Employee Retirement Income Security Act (ERISA), and their plan administrators, need to prepare for the approaching April 1st deadline of the new claims handling regulations.  Employer action items can be found in our article posted here. The ERISA regulations were effective January 2017, but were delayed until April 1, 2018. The U.S. Department of Labor (DOL) has confirmed the ERISA disability claims administration regulations will not be delayed or revised further, according to the DOL’s recent announcement.

Jackson Lewis attorneys are available to assist employers, plan administrators, and TPAs to ensure compliance by April 1st.

2018 Tax Reform Series: Goodbye to the Individual Mandate

This is the seventh article in our series covering various tax and employee benefits-related changes contained in the Tax Cuts and Jobs Act signed by the President on December 22, 2017.

Once significant change made by the Act, summarized below, is the elimination of the Affordable Care Act’s individual mandate, effective 2019.

Background

Long an unpopular feature of the ACA, the individual mandate requires most Americans (other than those who qualify for a hardship exemption) to purchase a minimum level of health coverage. Those who fail to do so are liable for a penalty of $695 for an adult or 2.5 percent of household income, whichever is greater.

The Act accomplished the elimination of the individual mandated by reducing the penalty amounts to $0 and zero percent, respectively.

Although often cited as an egregious example of government over-reach, the individual mandate does not impact the majority of Americans, specifically those who receive their health coverage through their employers or through public programs such as Medicare and Medicaid.

Impact of Elimination

The nonpartisan Congressional Budget Office (“CBO”) projects that the elimination of the individual mandate will spare taxpayers $43 billion in penalties that they would otherwise have paid through 2027. The CBO also projects that the elimination will result in 4 million people dropping health insurance coverage in 2019, with 13 million more becoming uninsured by 2027.

The elimination is expected to save the government $300 billion over the next ten years, in the form of fewer people receiving insurance subsidies or Medicaid, according to the CBO.

The CBO estimates that marketplace premiums will rise 10 percent without the individual mandate.

Employer Mandate and Other ACA Features Still in Place

The Act leaves many aspects of the ACA intact, including the individual marketplace, premium subsidies for those earning between 100% and 400% of the federal poverty rate, the ban on insurers charging more or denying coverage based on health factors, and Medicaid expansion.

Most significantly for employers, however, is the employer mandate and reporting requirements, which remain in force. Accordingly, applicable large employers will need to plan around the Code section 4980H(a) (“A”) penalty — which can apply if an employer does not offer minimum essential coverage to at least 95% of its full-time employees and at least one full-time employee buys subsidized marketplace coverage — and the Code section 4980H(b) (“B”) penalty — which can apply if an employer offers full-time employees coverage that is not affordable or does not meet minimum value requirements.

In 2018, A penalty is $2,320 (or $193.33 per month) multiplied by the total number of full-time employees (minus 30). The B penalty is $3,480 (or $290 per month) for each full-time employee who buys subsidized marketplace coverage (capped by the amount of the A penalty).

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