DOL and IRS Health and Welfare Plan Audits: Latest ...

DOL and IRS Health and Welfare Plan Audits:

Latest Examination Initiatives, Key Legal

Provisions, Avoiding Triggers

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WEDNESDAY, JUNE 24, 2020

Presenting a live 90-minute webinar with interactive Q&A

Kim Flett, CPA, QPA, QKA, CHRS, Compensation and Benefits Services Managing Director,

BDO USA, Akron, Ohio

José M. Jara, Partner, Archer, New York

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By: Jose M. Jara

[email protected]

June 24, 2020

DOL Health and Welfare Plan Audits

BACKGROUND: DOL AND EBSA

6

EBSA

National Office

– Different divisions with different missions

– OE, ORI, OED, OPR, OCA, SOL

Regional Offices

– Regional Directors

– Pension Benefit Advisors

• “customer service”; handle calls

Investigators

– Usually attorneys or accountants

Supervisors

– Usually former investigator

7

EBSA: CIVIL AND CRIMINAL

• EBSA has broad investigative authority

• Most EBSA investigations are civil, but EBSA

also has authority to conduct criminal

investigations

• Same investigators

• Some different rules for criminal cases

• Criminal cases go to the U.S. Attorneys Office

instead of DOL Solicitor’s

• Enforcement Manual on website

8

Investigations

EBSA Enforcement Statistics

• 694K retirement plans; 2.2M health plans

• $2.5B recovered for direct payment to plans,

participants, beneficiaries

– $2B Enforcement Actions

– $510M Informal Complaint Resolutions

• Over 1,146 civil cases closed; 67% with results

• 89 cases referred for litigation

9

WHY ME?

• EBSA investigators likely will not tell you why your plan is being

reviewed

• Reasons for initiating reviews:

– Employee/Participant Complaints

– Other Complaints

• Targeted:

– National Office Enforcement Projects

– Regional Office Enforcement Projects

– Information Reported on Form 5500s

• Random?

• Referrals from other agencies

10

EBSA ENFORCEMENT

PROJECTS

National Enforcement Projects on:

• Major Case Enforcement Priority

• Employee Contributions Enforcement Priority

• Contributory Plans Criminal Project

• Plan Investments Conflicts

• Health Benefits Security Project (Part 7)

• ESOPs

• Bankruptcy (REACT)

• Abandoned Plans

• Voluntary Fiduciary Correction

• Catch All – ERISA TITLE I VIOLATIONS

11

INVESTIGATION SUBJECTS

• All Types of Employee Benefit Plans:

– Retirement, Health, Apprenticeship, Legal

• Plan Sponsors

• Plan Trustees

• Named Fiduciaries

– Functional Fiduciaries

• Plan Administrators

• Service Providers

– Consultants

– TPAs

– Directed Trustees

– Broker

12

WHAT ARE THEY LOOKING

FOR?

COMMON SCENARIOS

• Delinquent Employee Contributions

• Excessive Service Provider Fees

• Part 7 violations in Health Plans

– 701 Limitations on preexisting condition exclusion

– 702 Nondiscrimination based on health status

– 703 Guaranteed Renewability in multiemployer plans and

MEWAs

– 711 Standards relating to benefits for mothers and newborns

13

WHAT ARE THEY LOOKING

FOR?

• 712 Parity in Mental Health and Substance Use Disorder Benefits

• 713 Required coverage for reconstructive surgery following mastectomy

• 714 Coverage of dependent students on medically necessary leave of absence

• 715 Additional market reforms under the Affordable Care Act. This incorporates by

reference Part A of Title XXVII of the Public Health Service Act, sections:

• 2704 Prohibition on preexisting condition exclusions or other discrimination based on

health status

• 2711 No lifetime or annual limits

• 2712 Prohibition on rescissions

• 2713 Coverage of preventive services

• 2714 Extension of dependent coverage

• 2719A Patient protections

• 2719 Appeals process

14

HEALTH BENEFITS SECURITY

PROJECT

Includes a broad range of investigative issues such as:

• Compliance with ERISA

• Unpaid or improperly processed benefit claims

• Excessive service provider fees

• Systematic denial of promised benefits

• Criminal misconduct by plan fiduciaries or medical providers

Most common violations:

• Failure to maintain required documentation

• Failure to provide required notices

• Failure to provide benefits in accordance with plan terms

• Improper claims adjudication

• Failure to follow DOL claims procedures

• Failure to forward employee premiums to providers

15

DOL WELFARE PLAN AUDITS

ERISA enforcement includes:

• Consolidated Omnibus Budget Reconciliation Act (COBRA)

• Health Insurance Portability and Accountability Act (HIPAA)

• Mental Health Parity Act and Addiction Equity Act (MHPAEA)

• Newborn’s and Mother’s Health Protection Act (Newborns Act)

• Women’s Health and Cancer Rights Act (WHCRA)

• Genetic Information Nondiscrimination Act (GINA)

• Mental Health Parity and Addiction Equality Act (MHPAEA)

• Children’s Health Insurance Program Reauthorization Act (CHIPRA)

• Michelle’s Law

• Patient Protection and Affordable Care Act (ACA)

16

ERISA STATUTORY

REQUIREMENTS

Focus on investigating potential breaches of

ERISA fiduciary duty

• ERISA §404 Fiduciary Duties

• ERISA §405 Co-Fiduciary Duties

• ERISA §406 Prohibited Transactions

• ERISA §408 Exemptions

• ERISA Part 7 Health Plan Requirements

17

ERISA Basics

• Who is a fiduciary? ERISA 3(21)

– ERISA 409 – Personal Liability

• Fiduciary Duties ERISA 404

– “Eye single” to Participants and Beneficiaries

– Diversification

– Prudence

– Follow plan documents, unless contrary to

ERISA

18

Prudence

• "All that is required of a trustee to invest is, that he shall conduct

himself faithfully and exercise sound discretion. He is to observe

how men of prudence, discretion and intelligence manage their own

affairs, not in regard to speculation, but in regard to the permanent

disposition of their funds, considering the probable income, as well

as the probable safety of the capital to be invested.“ Harvard Coll. v.

Amory, 26 Mass. 446, 461 (1830)

• CARE, SKILL, PRUDENCE under the circumstances then prevailing

that a prudent person acting in like capacity and familiar with such

matters would use in the conduct of an enterprise of like character

with like aims.

• What a hypothetical prudent fiduciary would do under comparable

circumstances?

19

Prohibited Transactions(“Duty of Loyalty”)

• Prohibited Transactions– (a) Violations - between a Plan and PII

• PII: the employer, the union, plan fiduciaries, service

providers, and owners, officers, and relatives of parties-in-

interest

• Furnishing of goods, services, or facilities

• Extension of credit

• per se PT

– (b) Violations – Fiduciaries

• Self-dealing

• Kickbacks

20

Exemption

• ERISA 408

– Contract or arrangement – reasonable

– Services – necessary for the establishment or

operation of the Plan

– No more than reasonable compensation is

paid for services

21

EBSA INVESTIGATIVE PROCESS

• Initial Contact

– Usually a letter/could be a phone call

• Request for Documents

– Standard and non-standard requests

– If don’t cooperate expect a subpoena

– Accommodation subpoenas

22

ADMINISTRATIVE SUBPOENA

1. Statutory Authority - ERISA Section 504(c). For the purposes of any Title I ERISA

investigation, the provisions of sections 9 and 10 of the Federal Trade Commission Act are

applicable to the jurisdiction, powers, and duties of the Secretary or any officers designated

by him. These provisions give the Secretary 1) the authority to administer oaths, 2) the

power to compel the attendance of witnesses, and 3) the access to and the right to copy

documentary evidence.

2. Subpoena Duces Tecum. A subpoena duces tecum is a command to a person or

organization to appear at a specified time and place and to bring certain designated

documents, to produce the documents, and to testify as to their authenticity as well as any

other matter concerning which proper inquiry is made.

3. Subpoena Ad Testificandum. A subpoena ad testificandum is a command to a named

individual or corporation to appear at a specified time and place to give oral testimony under

oath. A verbatim transcript is made of this testimony.

4. Accommodation Subpoena. An accommodation subpoena is a subpoena issued to

persons or entities who are willing to testify or to produce the documents requested but are

concerned about protecting themselves from any potential adverse consequences of doing

so without a legal requirement.

23

Documents

Does request ask for copies to be sent to EBSA office or for on-site review?

– Pros and Cons to both

Standard Requests:

• Governing Plan Documents

• Plan Document/Amendments; Trust Document/Amendments; SPD/SMMs

• Minutes, Resolutions

• Part 7/ACA related (see DOL website)

• COBRA/HIPAA/other notices

• Correspondence/E-mails

• 5500s

• Fidelity Bond/Fiduciary Liability Policy

• Service Provider Contracts

24

INTERVIEWS

Typically interviews held on-site, sometimes

at EBSA office

• Voluntary

• Not recorded

• Not under oath

• No time limit

Attorney Present?

25

INTERVIEWS

1. General

• Name, SS#, Title and duties and responsibilities? How long in this role?

• How long have they been in the industry? Any formal fiduciary training?

• Tell me about the history of the plan?

• How many employees working for the plan?

• How many participants in the plan? When are they eligible to participate in the plans?

2. Plan Administration

• Who does what under the plan documents? Who does what in practice?

• Are there organizational structures, administrative manuals or guidelines as to

allocation of administrative responsibilities?

• Who appoints whom? Who supervises whom?

• Claims procedures in operation?

• Complaints from participants - who is designated to handled complaints and/or

inquires? Any written responses? Who reviews this persons decisions? Appeals

process?

26

INTERVIEWS

3. Plan Expenses

• Proper services for which payment can be made by a plan?

• Review procedure for monitoring any such expenses.

4. Service Providers

• who are your service providers? What service do they perform?

How were they selected?

• Any request for proposals? Who prepared the RFP and under what

guidelines?

27

Complaint

• Mr. or Mrs. CEO/Fiduciary – defendant– Due to the discretionary authority = fiduciary

– Engaged in non-exempt PT by contracting with a

service provider

– B/F by failing to go out to bid and determine market

for the fees being paid to service provider

– Accordingly, defendant paid excessive fees

– Defendant is personally liable to make the plan whole

for losses resulting from the breach

28

ERISA Requirement– RFP?

George v. Kraft Foods, 641 F.3d 786 (7th Cir. 2011)

• Selection: Soliciting bids among SP at the outset is a means by which the fiduciary can obtain the necessary information relevant to the decision-making process.

• Monitoring:• fiduciary's knowledge of a service provider's work product

• the cost and quality of services

• fiduciary's knowledge of prevailing rates for the services

• cost to the plan of conducting a particular selection process.

29

Conducting the RFP

• Objectively illicit information about the

quality of services v. fees charged

• Lowest bidder is not the standard

– “you get what you pay for”

– Not required to “scour the market”

30

Process

• Issue rules

– Communications must be transparent to all

bidders

• Key sections of Proposal

-plan an plan sponsor background

- Scope and Criteria

- Services to be provided – extremely clear as to

required services and wish list services

31

Qualifications

• About the Firm

• About the individual team members

– Request individual bios

– Conduct background check

– Check references

32

RFP - Miscellaneous

• Define the Services Required

• Fees – direct and indirect

• Contractual Provisions

– Gross negligence

– LOLs and SOLs

– Indemnification

• Documentation

– Include reason for selecting SP

33

Monitoring

• Evaluate any notices from provider about

changes to compensation or other

changes from original arrangement.

• Review performance.

• Evaluate work product/reports.

• Check actual fees being charge.

• Follow up on participant complaints.

34

Follow Up (and why does it

take so long?)

• There will be follow up questions

• There will likely be follow up requests for

documents

• There could very likely be long periods of

time between requests, contacts

• What’s happening at EBSA?

– Reports- Investigator, Supervisor, National

– Reviews-Supervisor, Regional, National

35

Voluntary Compliance

• EBSA encourages voluntary compliance

• Offered in almost all matters

• Work with the investigator and correct issues identified in

the review

– Change procedures

– Adopt policies

– Enforce policies

– Restore assets

– Repay monies

– Correct prohibited transactions

36

Referral to Solicitor’s Office

• SOL attorney will receive all investigation

materials, interview reports, and

documents, along with EBSA report

describing investigation and findings

• SOL attorney will conduct independent

review of facts and claims

• SOL attorney will likely reach out to

subjects of investigation

37

Solicitor’s Office

• Complaint/Consent Judgment

– If enter into negotiations before SOL files in federal

court

– SOL will file the complaint

– Simultaneously file negotiated consent judgment

• Several non-negotiable items:

– No denials of liability

– DOL will issue press release

– DOL will assess 502(l) penalty

38

José M. Jara

José M. Jara concentrates his practice in ERISA and labor and employment matters. He

has over 20 years of experience representing corporations, tax-exempts, associations,

pension funds, boards of trustees, multiple employer plans, multi-employer plans and

individuals in the areas of employment, ERISA, and employee benefits law. Jose’s practice

includes defending plan sponsors and fiduciaries in lawsuits alleging breach of fiduciary

duty claims and representing clients under investigation by the U.S. Department of Labor

(DOL), Employee Benefits Security Administration and Office of the Solicitor.

Representative Experience

• Retained as Special Counsel to assist in the defense of a DOL lawsuit against a

nonprofit corporation alleging ERISA breach of fiduciary duties and prohibited

transactions due to purportedly paying excessive fees to its service providers in

connection with a group self-funded health plan that it sponsored. The judge sided

with the client on all counts.

• •Defended fiduciaries and the board of directors of a manufacturing company

sponsoring an ESOP and 401(k) Plan (the “Plans”) from a class action lawsuit alleging

ERISA breach of fiduciary duty in connection with the Plans’ investment in the

employer’s stock. The case favorably settled before trial well within the insurance

policy’s limits.

• Represented a billion dollar pension fund in an investigation by the DOL looking for

violations of ERISA, including the proper allocation of costs and expenses shared with

other related funds. The investigation resulted in a “no action” letter by the DOL.

Partner

[email protected]

646-452-4014

New York, NY

Haddonfield, NJ

Practice Areas

Labor & Employment Law

Employee Benefit Plans /

Executive

Compensation / ERISA

Trade Secret Protection and

Non-Compete

Workplace Training Resources

Admitted

New Jersey

Education

Georgetown Law Center,

LL.M. Georgetown Law

Center, Certificate in Employee

Benefits Law Benjamin N.

Cardozo School of Law, J.D.

Manhattan College, B.S.39

mailto:[email protected]

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK

company limited by guarantee, and forms part of the international BDO network of independent member firms.

DOL AND IRS

HEALTH AND

WELFARE PLAN

AUDITS

06/24/2020

Kim Flett

40

41 DOL and IRS Health and Welfare Plan Audits

Agenda

1. IRS Process for Health and Welfare Plan Audits

2. Regulatory Updates: Health & Welfare Plans

3. Best Practices and Preventative Measures

4. Case Examples

5. Resources


Health and Welfare Plans

Health and welfare benefit plans include plans that provide:

(a) medical, dental, visual, psychiatric, or long-term health care;

severance benefits; life insurance; accidental death or dismemberment

benefits;

(b) unemployment, disability, vacations or holiday benefits

(c) apprenticeships, tuition assistance, day-care, housing subsidies, or

legal services benefits;

(d) postemployment benefits such as salary continuation, supplemental

unemployment benefits, disability-related job training and counseling.

Health and welfare benefit plans may be either defined-benefit or

defined-contribution plans.

AICPA.org


Health and Welfare Plans

Health and welfare benefit plans generally are subject to certain

fiduciary, reporting, and other requirements of the Employee

Retirement Income Security Act of 1974 (ERISA).

Plans that are unfunded (that is, those whose benefits are paid solely

and directly out of the general assets of the employer), are fully

insured through the direct payment of premiums to the insurance

company by the employer; or are certain combinations thereof for

example, self-funded plans with stop-loss coverage, may not be

required to include financial statements in their ERISA filings.

An understanding of the health and welfare benefit plan is needed to

determine its accounting and reporting requirements.

AICPA.org


IRS Employee Plan Examination Process

• Retirement Plan is selected for audit

• Letter is sent requesting review of plan records and documents

• Appointment date set between Employer/OA or authorized representative and

Internal Revenue Service agent

• IRS agent conducts on-site audit of the plan

• Additional documents may be requested or subsequent changes

• If agreed upon:

• Necessary tax changes or adjustments to be made are outlined

• Plan sponsor makes corrective action (Qualified Plans EPCRS)

• May pay a fee

• Case closed or

• Unagreed case/revocation: Proposed revocation or non-qualification letter issued

• IRS Publication 4324: Employee Plan Examination Process Flowchart


Highlights from the Internal Revenue Manual (IRM):

Internal Revenue Manuals (IRM), Pat 25. Special Topics

25.21.4 “IRC 6056 Non-Filer and IRC 4980H Compliance Process

4.70 TE/GE Examinations

Fyi: 4.71 Employee Plans Examination of Returns and 4.72

Employee Plans Technical Guidelines and 4.75 Exempt

Organizations Examination Procedures

Other examples:

- 4.4.14 IRA, ESA, and MSA

- 4.24 Excise Tax


Affordable Care Act – 226-J Letter

• Letter 226-J is sent by the IRS to Applicable Large

Employers (ALEs) to notify them that they may be liable for

an Employer Shared Responsibility Payment (ESRP).

• The determination regarding the liability for an ESRP and

the amount of the proposed ESRP in Letter 226-J are based

on information from Forms 1094-C and 1095-C filed by the

plan sponsor and the individual income tax returns filed by

the employees.Be sure to respond

promptly!


Affordable Care Act – 226-J Letter• The letter certifies under Section 1411 of the ACA, that at for at least one

month in the year, one or more of the full-time employees was enrolled in

qualified health plan for which a premium-tax credit was allowed.

• Employers generally owe an ESRP for a month if either:

• A. They did not offer minimal essential coverage (MEC) to at least 95% of

their full-time employees (and their dependents) and at least one of the

full-time employees was certified as being allowed the PTC, or

• B. They offered MEC to at least 95% of their full-time employees (and their

dependents), but at least one of the full-time employees was certified as

being allowed the PTC

• The coverage was unaffordable

• Did not provide minimum value or the full-time employee was not offered

coverage



The following items are included:

• An explanation of the employer shared responsibility provisions in

Internal Revenue Code (IRC) Section 4980H, which are the basis for

the ESRP.

• An ESRP Summary Table itemizing your proposed ESRP by month;

• An Explanation of the ESRP Summary Table

• Form 14764, ESRP Response

• Form 14765, Employee Premium Tax Credit (PTC) Listing

(Employee PTC Listing)

It will be useful to have the Form(s) 1094-C and 1095-C that was filed

with the IRS for the tax year shown on the first page of this letter

available when the letter is reviewed.



• The authority for proposing the ESRP is IRC Section 4980H.

• For more information about IRC Section 4980H, including definitions

of key terms, such as full-time employee, how to determine ALE

status and whether the ALE has made an offer of coverage visit the

ACA Information Center for Applicable Large Employers (ALEs) at

www .irs.gov, keyword "ALEs."



Month

a.

Form 1094-C,

Part III, Col (a)

Minimum

essential

coverage offer

indicator

offered to at

least 95%

b.

Form 1094-C,

Part III, Col

(b)

Full-time

employee

count forALE

member

c.

Allocated

reduction

offull time

employee

count for IRC

Section

4980H(a)

d.

Count of

assessable

full-time

employees

withaPTC

for IRC

Section

4980H(a)

e.

Count of

assessable

full time

employees

with a PTC

for IRC

Section

4980H(b)

f.

Applicable

IRC Section

4980H

provision

g.

Monthly

ESRP amount



Month a. b. c. d. e. f. g.

January No 75 30 1 - 4980H(a) $8,475

IRC Section 4980H(a) applies for a month when column (a) Minimum essential coverage offer indicator

(offered to at least 95%) is market! "No" and column (d) Count of assessable full-time employees with a PTC

for IRC Section 4980H(a) is at least one for that same month. An IRC Section 4980H(a) ESRP is computed by

taking the number in column (b), IRC Section 4980H full-time employee count for ALE member, subtracting

the number in column (c), Allocated reduction of full-time employee count for IRC Section 4980H(a), and

multiplying the resulting number by $2,260/12 or $188.33 to arrive at the monthly ESRP amount.

IRC Section 4980H(b) applies for a month when column (a) Minimum essential coverage indicator (offered to at

least 95%) is marked "Yes" and column (e) Count of assessable full-time employees with a PTC for IRC section

4980H(b) is at least one for that same month. An IRC Section 4980H(b) ESRP is computed by taking the number

in column (e), Count of assessable full-time employees with a PTC for 4980H(b), and multiplying that number by

$3 ,390/12 or $282.50 to arrive at the monthly ESRP amount.


Cafeteria Plans – Notice 2020-29

• Relaxes the rules regarding mid-year election changes during calendar year

2020 for employer-sponsored health plan coverage, health Flexible Spending

Arrangements (FSAs), and dependent care assistance programs (DCAPs).

• It also allows a special grace period to apply unused amounts in health FSAs

and DCAPs to expenses incurred through December 31, 2020.

• To assist with the U.S. response to the 2019 novel coronavirus (COVID-19),

and provide greater flexibility for employers.


Cafeteria Plans – Notice 2020-29Employers may (but are not required to) permit employees who are eligible to

make salary reduction contributions under the plan to take any of the

following actions as a mid-year election made during calendar year 2020.

Employer-sponsored health coverage

Make a new election on a prospective basis, if the employee initially declined

to elect employer-sponsored health coverage.

Revoke an existing election and make a new election to enroll in different

health coverage sponsored by the same employer on a prospective basis.

Revoke an existing election on a prospective basis, provided that the

employee attests in writing that the employee is enrolled, or will immediately

enroll, in other health coverage not sponsored by the employer.



Employers may (but are not required to) permit employees who are eligible to

make salary reduction contributions under the plan to take any of the following

actions as a mid-year election made during calendar year 2020.

Health FSAs

Revoke an election

Make a new election

Decrease or increase an existing election on a prospective basis

Dependent Care

Revoke an election

Make a new election

Decrease or increase an existing election on a prospective basis


Cafeteria Plans – Notice 2020-29Extended Claims Period

For unused amounts remaining in a health FSA or DCAP as of the end of the

plan’s allowable grace period (i.e., up to 2 ½ months after the end of the plan

year) or plan year ending in 2020 (including plans that allow for a carryover of

unused amounts), the plan may permit employees to apply those unused

amounts to pay or reimburse medical or dependent care expenses, respectively,

incurred through December 31, 2020.

Retroactive Relief for High Deductible Health Plans (HDHPs)

Notice 2020-29 allows the previously announced temporary relief for HDHPs to

be applied retroactively to January 1, 2020 (i.e., with respect to HDHPs covering

expenses related to COVID-19 and giving HDHPs a temporary exemption for

telehealth services).



• Permanently increases the carryover limit of unused amounts

remaining as of the end of a plan year in a health FSA that may be

carried over to pay or reimburse a participant for medical care

expenses incurred during the following plan year, from $500 to $550

(20% of the deferral amount).

• That notice also clarifies that a health plan can reimburse individual

health insurance policy premium expenses incurred before the

beginning of the plan year for coverage provided during the plan year

(which will help implement individual coverage health reimbursement

arrangements (HRAs)).



• The maximum carryover ($500 for 2019 and $550 for 2020) does not

count against the annual health FSA salary deferral limit ($2,700 for

2019; $2,750 for 2020).

• An employer may specify in its plan document a lower amount for the

health FSA carryover or may decide to not permit any carryover at

all.

• Carryover amounts can be used to pay or reimburse a participant for

medical care expenses incurred during the following plan year. For

example, amounts deferred under a health FSA in 2020 can be carried

over to pay expenses.


• Cafeteria Plans – Notice 2020-33• Health FSAs that use the IRS’s maximum carryover amount generally

would need to be amended by the end of the 2021 plan year to reflect

the increased carryover amount for plan years that begin in 2021.

However, Notice 2020-33 also allows plans to be amended for the 2020

plan year. Such amendments may be retroactively effective to January

1, 2020, provided that the employer informs all individuals eligible to

participate in the plan of the changes.

• Individual coverage Health Reimbursement Arrangements (HRAs).

Notice 2020-33 also clarifies that a health plan can reimburse individual

insurance policy premiums incurred before the beginning of the plan

year for coverage provided during the plan year (which will help

implement individual coverage HRAs).


CARES ACT Updates & IRS Notice 2020-15

HDHPs would not fail to be health savings account (“HSA”) eligible if the

HDHP covers coronavirus-related testing and treatment before satisfaction

of the statutory minimum deductible.

This rule applies to any pre-deductible coverage for expenses incurred on

or after January 1, 2020.

Provides that testing for other health conditions to rule out COVID-19 (such

as tests for the flu, norovirus or other coronaviruses, or other respiratory

diseases may also be covered prior to satisfaction of the statutory minimum

deductible.


CARES ACT Updates

• Allows HDHPs to remain HSA-eligible if they provide pre-deductible

coverage for telehealth or other remote care services.

• The CARES Act provision was effective on March 27, 2020, and applies to

plan years beginning on or before December 31, 2021.

• The new IRS guidance provides that HDHPs will remain HSA-eligible if

they provide pre-deductible coverage for telehealth and remote care

services beginning on January 1, 2020, through the end of plan years

beginning on or before December 31, 2021.


Best Practices and

Preventative Measures1. Wrap Documents

2. Notice requirements

3. TPA & Service Providers

4. Elections

5. Non-discrimination testing

6. Note all plans: HRAs, FSA, HSAs

7. Self Audits

8. Regulatory Requirements: Form 5500, Form 720, Form 1094-C

and Form 1095-C


2020 and 2019 Medical Plan Limits

2020 2019

Sec. 125 Flexible Spending Accounts 2,750 2,700

Adoption Assistance ¹ 14,300 14,080

Health Savings Accounts

HDHP Deductible

Individual 1,400 1,350

Family 2,800 2,700

Contribution

Individual 3,550 3,500

Family 7,100 7,000

Catch Up 1,000 1,000

¹ The exclusion is phased out for higher income taxpayers calculated on Form 8839.


Case Examples


McGuire v. Comm’r, 419 T.C. 254

August 28, 2017

Petitioners' household income for 2014 rose above 400 percent of the Federal poverty line. Because

their household income exceeded that threshold, they were not entitled to any of the advance

premium tax credit they received; [2]-Although the court was sympathetic to petitioners' situation, the

statute was clear. Excess advance premium tax credits were treated as an increase in the tax

imposed, I.R.C. § 36B(f)(2)(A); [3]-Petitioners received an advance of a credit to which they ultimately

were not entitled. They were liable for the $7,092 deficiency.

Outcome

Decision was entered for the Commissioner as to the tax and for petitioners as to the penalty.

Source: Lexis Advance Research

https://advance.lexis.com/document/teaserdocument/?pdmfid=1000516&crid=406f8a4a-f494-4be8-afa5-2de682403a21&pdteaserkey=h1&pditab=allpods&pddocfullpath=%2Fshared%2Fdocument%2Fcases%2Furn%3AcontentItem%3A5PC0-5271-F04K-5005-00000-00&ecomp=kxdsk&earg=sr1&prid=f7803ba2-cb3a-4b50-9215-a7d9b31c7c56


Estate of Barnhorst v. Comm’r, T.C. Memo 2016-

177, September 20, 2016

Overview

HOLDINGS: [1]-Whether payments were nontaxable distributions or whether the payments were

includible in income as deferred compensation depended on whether the policy in question was an

accident or health plan as defined in 26 U.S.C.S. § 105(a); [2]-Policy was a disguised form of deferred

compensation, as payouts under the policy had no correlation with the taxpayer’s actual medical

expenses, the policy’s distinctions between types of injuries and illnesses did not make any real

difference, and the taxpayer (or his beneficiaries in the event of his death) were guaranteed to get 98

percent cash value no matter was happened; [3]-Taxpayers were subject to the 26 U.S.C.S. §

6662(a) penalty, as they did not have reasonable cause for the understatement.

Outcome

The court granted summary judgment in favor of the Commissioner on the issues remaining in dispute.


https://advance.lexis.com/document/?pdmfid=1000516&crid=3425fd4a-b636-41ba-869e-32fbd2cc386e&pddocfullpath=%2Fshared%2Fdocument%2Fcases%2Furn%3AcontentItem%3A5KS2-4571-F04K-603R-00000-00&pdcontentcomponentid=6139&pdshepid=urn%3AcontentItem%3A5KS3-20V1-DXC8-753T-00000-00&pdteaserkey=sr5&pditab=allpods&ecomp=kxdsk&earg=sr5&prid=ab53cbb3-9d12-474f-b742-a866b6f77994

https://advance.lexis.com/document/?pdmfid=1000516&crid=3425fd4a-b636-41ba-869e-32fbd2cc386e&pddocfullpath=%2Fshared%2Fdocument%2Fcases%2Furn%3AcontentItem%3A5KS2-4571-F04K-603R-00000-00&pdcontentcomponentid=6139&pdshepid=urn%3AcontentItem%3A5KS3-20V1-DXC8-753T-00000-00&pdteaserkey=sr5&pditab=allpods&ecomp=kxdsk&earg=sr5&prid=ab53cbb3-9d12-474f-b742-a866b6f77994


Kerns v. Comm’r, T.C. Memo 2019-14

March 4, 2019

Overview

1]-Because petitioners' (P's) household income substantially exceeded the income limit for I.R.C. §

36B credit eligibility, they were ineligible for any advance premium tax credit (APTC) in 2014; [2]-

Where (as here) taxpayers are ineligible for an APTC, their tax liability is increased dollar-for-dollar

by APTC payments made on their behalf, I.R.C. § 36B(f)(2)(A). P accordingly had a deficiency in

income tax equal to $8,420, the total of the APTC payments remitted by Treasury to the insurer; [3]-

I.R.C. § 36B(f)(2)(A) explicitly provided that, if the advance payments to a taxpayer exceed the credit

allowed by this section, the tax imposed by this chapter for the taxable year shall be increased by the

amount of such excess. This mandate did not admit of equitable exceptions, and it could not be

nullified or offset by claims P may have had against other parties under State law.

Outcome

An order and decision were entered for the Commissioner.


https://advance.lexis.com/document/?pdmfid=1000516&crid=43632b67-982d-4afa-ab29-388af767a633&pddocfullpath=%2Fshared%2Fdocument%2Fcases%2Furn%3AcontentItem%3A5VJW-GNK1-JB7K-2501-00000-00&pdcontentcomponentid=6139&pdshepid=urn%3AcontentItem%3A5VJM-CVM1-DXC8-73N3-00000-00&pdteaserkey=sr6&pditab=allpods&ecomp=kxdsk&earg=sr6&prid=ab53cbb3-9d12-474f-b742-a866b6f77994




Resources1. https://www.irs.gov/individuals/understanding-your-letter-226-j

2. BDO’s ERISA Center of Excellence:

https://www.bdo.com/services/assurance/employee-benefit-plan-

audits/erisa-center-of-excellence

3. IRS.gov

4. EFAST.DOL.GOV

https://www.irs.gov/individuals/understanding-your-letter-226-j

https://www.bdo.com/services/assurance/employee-benefit-plan-audits/erisa-center-of-excellence

TITLE68

[email protected]

Direct: +234-466-4068

301 Springside Drive

Akron, OH 44333

Tel: +330-668-9696

Fax: +330-668-2538

www.bdo.com

EXPERIENCE SUMMARY

Kim is a managing director in BDO’s Compensation and Benefit Services practice.

With over 20 years of experience in ERISA, she supervises a team of professionals and

is responsible for all aspects of qualified plans including government and tax

compliance, ERISA consulting, technical review, internal quality control, and

retirement plan design and administration. Kimberly is also responsible for medical

plan consulting, including welfare benefit and specializes in the Affordable Care Act

and is an integral part of the leadership team in the Firm’s growing defined benefit

practice. She is a tax compliance expert for the Firm’s Assurance Employee Benefit

Practice in addition to a technical advisor for the Firm’s national compliance help

desks. She is also a business development leader for the Compensation and Benefits

global team nationally. Kim is a frequent writer and lecturer including speaking at

the AICPA’s annual Employee Benefit Conference.

PROFESSIONAL AFFILIATIONS

American Institute of Certified Public Accountants, Employee Benefits Tax Technical

Resource Panel and Health Reform Task Force, Chair

American Society of Pension Professionals & Actuaries

Leadership Akron Community Leadership Institute, Class of 2012

National Tax-Deferred Savings Association, Editorial Committee

EDUCATION

B.S., Accounting and Education, Cleveland State University

Master of Taxation Candidate, William Howard Taft University

KIMBERLY FLETT, CPA, QPA, QKA, CHRSCompensation and Benefits Services Managing Director

National Practice Leader, ERISA

DOL and IRS Health and Welfare Plan Audits

TITLE69

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Today, BDO’s entrepreneurial spirit lives on, and the firm continues

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