On May 10, 2018, the IRS announced cost-of-living adjustments to the applicable dollar limits for health savings accounts and high-deductible health plans for 2019. Many of the limits will change for 2019.
Executive compensation for the health care industry is always an important topic for the board, made even more critical by the provisions of the Tax Cuts and Jobs Act and recent governance trends. We’re joined by two of the leading health care industry voices on executive compensation practices: Tim Cotter of Sullivan, Cotter and Associates, and McDermott partner Ralph DeJong.
US tax reform is changing the game with respect to many of the popular benefits employers have traditionally provided to their employees. These new rules have produced a great deal of questions. However, while the Internal Revenue Service (IRS) is formulating guidance, employers are left to navigate these changes on their own in order to determine the impact on both themselves and their employees. Employers are also reevaluating their benefit offerings in light of the new rules. These issues and more were addressed during the 2018 McDermott Tax Symposium on April 24, 2018.
The McDermott panel left the audience with these core takeaways:
- Due to the suspension of their employees’ ability to take many itemized deductions, employers should consider the feasibility of restructuring their compensation arrangements to save income taxes and FICA taxes.
- Certain employers that are public employers, private employers with public debt or non-U.S. employers with ADRs traded on a U.S. market should evaluate their executive pay arrangements to determine whether the grandfathering rules under section 162(m) apply to any compensation and further ensure compliance with the new rules under section 162(m).
- Employers should consider whether they will continue to provide popular benefits such as qualified transportation fringes and employer-provided meals. If employers choose to continue to provide these benefits, they will need to confirm that their systems are updated to reflect the changes in deductibility.
- Employers should begin using the updated Form W-4, if they are not already.
- Employers should encourage their employees to utilize the IRS’ updated withholding calculator to verify that the proper tax amounts are being withheld.
For additional information on these topics and other items addressed by McDermott tax professionals during the symposium, please see the compilation of slides. For additional tax reform resources, please visit McDermott’s Take on Tax Reform.
Last month, Alexander Lee and Maureen O’Brien joined with Rob Wellner from Velocity Global to discuss the tax and employee benefits complications that arise in cross-border transactions. Key points discussed:
- Complex tax structures must be considered and understood
- Transfers of employment may be governed by different statutes in each affected jurisdiction
- Purchasers may not be ready to provide employment, payroll and benefits on the closing date without significant pre-closing work
Allison Wilkerson presented on a panel at the National Center for Employee Ownership (NCEO) Conference. The panel provided an overview of issues impacting compensation matters, as well as decisions affecting privately held companies that are wholly or partially owned by an ESOP. The presentation included an analysis of certain legal requirements and a current view on best practices. Finally, the panelists provided real-life examples of effective compensation programs and decision-making strategies for executive and staff compensation.
On April 26, 2018, the Internal Revenue Service (IRS) increased the 2018 maximum deductible Health Savings Account (HSA) contribution for taxpayers with family coverage under a High Deductible Health Plan (HDHP) to $6,900.
The $6,900 contribution limit for 2018 was originally published in Revenue Procedure 2017-37, but was reduced earlier this year by $50 to $6,850 in Revenue Procedure 2018-18 due to changes in the inflation indexing measure under the Tax Cuts and Jobs Act. The IRS later increased the limit back to the originally announced amount of $6,900. This relief is published in Revenue Procedure 2018-27 and appears to be the result of pushback from employers, many of whom would face significant administrative costs due to implementing the mid-year change, and governing law requiring the annual HSA limits to be published by no later than June 1 of the preceding calendar year.
Under the guidance, an individual who received a distribution from an HSA in 2018 of an excess contribution based on the previous $50 reduction may repay the distribution to the HSA by April 15, 2019. The repaid amount would not be included in the individual’s gross income or subject to additional taxation. Alternatively, such individual may take no action and treat the $50 HSA distribution as an excess contribution that was timely returned and thus not subject to income inclusion or additional taxation.
Employers who previously lowered their plan’s contribution limit for HSAs to $6,850 should consider how to address the increased limit and whether any changes or employee communications are necessary.
In a recent 2-1 decision, the Fifth Court vacated the US Department of Labor’s controversial expansion of the ERISA fiduciary regulations (the New Fiduciary Rule). If the DOL does not seek a rehearing, the Fifth Circuit will enter a mandate revoking the New Fiduciary Rule nationwide. However, given recent fiduciary regulations proposed by the Securities and Exchange Commission, the DOL may be less likely to appeal the ruling and no longer seek to enforce the New Fiduciary Rule.
Join us for a webinar on Friday, May 4 as McDermott litigation attorney Chris Nemeth joins employee benefit attorney Judith Wethall to discuss what’s new in employee benefits litigation. Chris will give you a peek into a world you hope never to go! Learn about disturbing trends, traps and how to prevent your employee benefit plans from being targeted.
Friday, May 4, 2018
10:00 – 10:45 am PDT
11:00 – 11:45 am MDT
12:00 – 12:45 pm CDT
1:00 – 1:45 pm EDT
A lawsuit against Vanderbilt University is moving forward based on allegations that the university and its fiduciaries mismanaged its retirement plan by paying excessive fees and maintaining poor investment options.
In that lawsuit, Cassell v. Vanderbilt et al., plaintiffs filed a 160-page complaint alleging multiple violations of ERISA. Cassell v. Vanderbilt, No. 3:16-cv-02086 (M.D. Tenn. Jan. 5, 2018). Cassell is one of numerous class action lawsuits that have been filed against prominent universities based on similar allegations. The lawsuits allege that Internal Revenue Code Section 403(b) plan fiduciaries breached duties of prudence and loyalty, and engaged in prohibited transactions. Vanderbilt University, like other schools, filed a motion to dismiss the claims. The court granted part of its motion, but allowed the rest of the lawsuit to proceed.
If an employer has employees in San Francisco and is subject to the Health Care Security Ordinance (HCSO), the employer must submit its 2017 Annual Reporting Form by April 30, 2018. Failure to timely submit a report could expose employers to penalties of up to $500 per quarter. To begin, obtain your company’s San Francisco business identification number and submit your report online here.
If you are not sure whether you are subject to the San Francisco’s HCSO, reach out to the author or your regular McDermott attorney.