How Business Might Change Under Trump: Maternity Leave

trump maternity leave

Image credit: Diego Cambiaso via flickr

Note: There are many unknowns for employers as Donald Trump takes office in two months. While many policy specifics are not crystal clear, we do know that a Trump presidency will be significantly different than our last eight years under President Obama. This is the first in a series of posts we will be writing that are aimed at letting you know what this regime change might mean to you as an employer.

One of the most developed policy announcement of the Trump presidential campaign came midway through the summer and was presented by his daughter Ivanka. Within Trump’s childcare reform plan was a program for ensuring paid maternity leave for all mothers in the United States. Here is how it would work conceptually:

The proposed Trump maternity leave plan would offer mothers six weeks of partial pay while they are out on leave. This maternity pay applies to women that work at companies that don’t already pay for maternity leaves and would be handled through unemployment insurance, which according to Trump represents 1.4 million women annually.

It should be noted that Trump’s maternity leave proposal, as we understand it, does not include any additional leave benefits for men or parents that adopt and there are conflicting views on whether it covers unwed mothers.

It is also worth noting that some have called the funding source of this initiative into question. Trump’s program calls for paying this new entitlement, which he estimates at $2.5 billion annually, through savings the Federal Government will realize by cleaning up unemployment fraud. Trump pegs “improper payments” of unemployment insurance at $5.6 billion, which covers the maternity leave program and then some, if his estimate is accurate.

It is unclear if this plan will garner enough support from Congress to be enacted, and frankly, it is unclear if Trump would send it to Congress as proposed. We will be monitoring this as the transition proceeds and will provide updates here if anything materializes.

You can read the entire Trump Childcare Reform position paper here.

New Limitations on Short-Term Healthcare Policies: What You Need to Know

Short-Term Healthcare

Image credit: Michael Havens via flickr

On October 31st, the US Departments of Labor, Health and Human Services and Treasury (the Departments) issued a Final Rule pertaining to short-term healthcare policies. Here are the details:

Short-term health policies are exactly as they sound: healthcare policies, limited in duration, that are meant to function to fill a gap in coverage some individuals may face during their lives if they transition between jobs or group health plans. They are currently limited to twelve months of coverage.

What the Departments have found is there is a growing practice of individuals purchasing short-term policies (which are generally cheaper than exchange policies) and then paying the IRS penalty (short-term policies are not considered Minimum Essential Coverage), which has become a cheaper option. In some cases, individuals are even allowed to renew their short-term policy past the twelve month period, further solidifying the policy as their primary coverage.

It is speculated those opting to go this route are healthier individuals that just want to ensure they have some coverage. These healthier individuals are exactly what the Affordable Care Act needs in the exchange risk pool to balance things out. This is why there was such a concerted effort to close the door on this practice and push these individuals to the exchanges.

To combat this practice and further diversify the exchange risk pool, the Departments have issues a Final Rule, which changes the twelve month maximum for short-term policy coverage to three months. This will be effective for any policies with policy years beginning January 1, 2017. It should be noted that the limit will not be enforced on any 2017 policies, sold before April 1, 2017, in states with existing approved 12 month limits providing the policy expires in the 2017 calendar year.

The full ruling can be found here.

This change won’t cause a seismic shift in the exchange risk pool, but with some of the projected rate increases being reported for 2017 and beyond, even small steps certainly help in chipping away.

Of course, in light of last night’s election results, much of the Affordable Care Act will be under a cloud of uncertainty for the foreseeable future, so stay tuned…

What 831(b) Captive Owners Need to Know About IRS Notice 2016-66

IRS Notice 2016-66On Tuesday, November 1 the US Internal Revenue Service (IRS) and Treasury Department issued a November surprise to the Captive Insurance industry in the form of Notice 2016-66.

What is Notice 2016-66?

Notice 2016-66 relates to captive insurance companies set up under U.S. code 831(b), also known as micro-captives. Stories of 831(b) captive abuse have been widely reported in recent times and have caught the eye of a number of U.S. agencies and lawmakers. There is a general understanding that there is an element of the micro-captive industry that improperly uses the tax exemption to shield taxable income. The IRS and Department of Treasury acknowledge this practice of tax avoidance and evasion, but as they point out in the early sections of 2016-66, there isn’t enough information currently gathered to properly target the offenders.

To combat this abuse, and to begin to gain a better understanding of the overall scope and use of 831(b)s, the two government agencies have teamed up on 2016-66. This new notice now defines certain 831(b) transactions as “transactions of interest” and now makes them subject to additional reporting of the transaction and imposes penalties for non-compliance.

Who does Notice 2016-66 Impact?

It is important here to understand exactly what the IRS is now terming a transaction of interest. Here is their definition (from IRS website):

  • A, a person, directly or indirectly owns an interest in an entity (or entities) (“Insured”) conducting a trade or business;
  • An entity (or entities) directly or indirectly owned by A, Insured, or persons related to A or Insured (“Captive”) enters into a contract (or contracts) (the “Contracts”) with Insured that Captive and Insured treat as insurance, or reinsures risks that Insured has initially insured with an intermediary, Company C;
  • Captive makes an election under § 831(b) to be taxed only on taxable investment income;
  • A, Insured, or one or more persons related (within the meaning of § 267(b) or 707(b)) to A or Insured directly or indirectly own at least 20 percent of the voting power or value of the outstanding stock of Captive; and
  • One or both of the following apply:
    • the amount of the liabilities incurred by Captive for insured losses and claim administration expenses during the Computation Period (defined in section 2.02 of this notice) is less than 70 percent of the following:
      • premiums earned by Captive during the Computation Period, less
      • policyholder dividends paid by Captive during the Computation Period; or
    • Captive has at any time during the Computation Period directly or indirectly made available as financing or otherwise conveyed or agreed to make available or convey to A, Insured, or a person related (within the meaning of § 267(b) or 707(b)) to A 10 or Insured (collectively, the “Recipient”) in a transaction that did not result in taxable income or gain to Recipient, any portion of the payments under the Contract, such as through a guarantee, a loan, or other transfer of Captive’s capital.

Benefits Exemption:

It should be noted here that any captive arrangement that has secured a Prohibited Transaction Exemption (PTE) from the US Department of Labor (DOL) to provide insurance for employee compensation or benefits covered by ERISA is not considered a Transaction of Interest under these new rules. This may have broad and deep implications on the employee benefit captive industry.

What are the Reporting Requirements?

Reporting of a transaction of interest must be done using Form 8886, which is the Reportable Transaction Disclosure Statement. The Form 8886 filing must describe the transaction in question enough so that the IRS understands how the transaction is structured and who is involved in it. There are additional Form 8886 filing requirements of the taxpayer and captive. These are described in detail here.

What are the Penalties?

Parties that do not comply with this new rule are subject to penalties under U.S. Code 6707A which states:

Subject to the maximum and minimum limits, the amount of the penalty is “75 percent of the decrease in tax shown on the return” as a result of the reportable transaction (or which would have resulted from such transaction if such transaction were respected for federal tax purposes).

  1. The maximum penalty in the case of a listed transaction is $100,000 for a natural person and $200,000 for all other taxpayers. In the case of a non-listed reportable transaction, the maximum penalty is $10,000 for a natural person and $50,000 for all other taxpayers.
  2. The minimum penalty for each reportable transaction (listed or non-listed) is $5,000 for a natural person and $10,000 for all other taxpayers.

It is pointed out in Notice 2016-66 that these rules may be revisited and transactions of interest may be redefined once the IRS and Treasury Department have a better grasp on the situation and better understand the abuse they are looking to eliminate. Further notices from the agencies will likely address this.

So, you own an 831(b) captive; what should you do next???

If you own an 831(b) micro-captive and are unsure of you need to fill out a Form 8886, contact our award-winning team of captive consultants, accountants and attorneys for an unbiased, independent review of your situation.

Alternatively, if you have been looking to write ERISA-covered employee benefits or compensation insurance into a micro-captive, now may be a great time to move forward. There are so many advantages to underwriting employee benefits and this ruling gives us yet another. Spring is the industry leader in employee benefit captive funding solutions and can help you evaluate your current situation and subsequently develop your plan and secure DOL approval. Contact us today!

Image credit: Isaac Bowen via flickr

Let’s Combat Rising Health Insurance Costs!

The big news in the world of politics last week was the reported increases employers are facing due, in part, due to insurer costs related to the Affordable Care Act. Media accounts have health insurance exchange open enrollment renewals pegged at an average increase of 28% with some having to pay double their current rates

We will leave it to the politicians to duke it out over the specific causes of the increase and who is to blame. As employee benefit advisors, we prefer to focus on how we can help employers get out from under these significant cost hikes, while still providing your employees with robust, cost-effective benefit packages. One solution that is generating positive results and cost savings for businesses is self-funding their health insurance.

A self-funded health insurance plan is one in which an employer retains the financial risk of covering employees’ health care costs with the option to insure against the cost of catastrophic claims. Contracting with a third-party payer, administrative services organization, or an insurance company, an employer will pay a third party to administer the benefits, pay claims and perform certain limited fiduciary functions.

There are many benefits to self-funding including plan design choice, cost transparency and cost savings. Self-funded employers have much more flexibility in their plan design than insured employers, as they are not subject to state coverage mandates. They also have insight into the actual cost of care, administrative costs and any loaded fees or additional expenses to the plan. Other benefits of moving to self-insurance include eliminating a number of taxes, fees and administrative costs incurred with a fully funded plan.

Once an employer has made the conversion to self-funding, they can achieve savings of anywhere from 5% to 15% depending on their cost structure. Self-insurance remains a powerful weapon in the war on burgeoning benefit costs. Employers who make the change can reap immediate benefits and avoid, or at least slowdown, some of the significant and inevitable cost increases on the horizon.

If your company is in the process of renewing your health insurance for 2017, or if a renewal is on the horizon, we can help. You owe it to your business and employees to talk to us about self-funding. Speak to one of our team of brokers, consultants, underwriters and actuaries for self-funding advice and a free, no-obligation quote. In the end, you may chose to go a fully funded route, but you should know your options especially in light of the projected increases.

Contact us today using the form below to discuss self-funding health insurance further.

You might also be interested in our FREE white paper on self-funding. This helpful eguide was written by our funding experts and will give you more detail about how exactly self-insurance works.

Spring Managing Partner to Present in Luxembourg

Karin Landry Spring Consulting GroupWe are excited to announce that Spring Managing Partner, Karin Landry, will be presenting at next week’s European Captive Forum conference.

Karin will be presenting a session titled: “Employee Benefits – Reflecting on successful employee benefit programmes, lessons learned and next steps” along with Valerie Alexander, Deputy to the Global Head of Corporate Insurance for Deutsche Bank and UK Head.

The session will focus on the advantages of benefit captive funding and how Deutsche Bank successfully wrote their life and disability risk into their captive. The session will also spotlight some of the results of the Spring 2016 Survey of Employee Benefit Captive Owners.

The European Captive Forum Conference runs from November 8th-9th in Luxembourg.

More details about the event, including registration information, can be found here.

What Employers Need to Know About the US Department of Labor’s New Overtime Pay Rules

new overtime pay rulesWith media coverage squarely focused on politics these days, significant regulatory changes that are about to be enacted and will impact countless American businesses, have completely flown under the radar. These changes center on determining who is eligible for overtime pay and they are definitely worth taking note. Here is what you need to know.

The overtime changes from the US Department of Labor (DOL), are being termed the “Final Rule” and what they essentially do is bring a modern interpretation to determining which white-collar salaried employees are exempt from the Fair Labor Standards Act’s overtime pay protection.

According to the Department of Labor, the percentage of full-time, salaried employees covered by overtime protection has dropped to just 7%, compared to 62% in 1975. These Final Rule changes about to be enacted will extend overtime pay eligibility to an estimated 4.2 million workers.

There are a few changes that will be ushered in with the implementation of the Final Rules, most notably is a significant rising of the salary threshold for overtime exemption.

Let’s step back for a moment and explain how a worker is exempt from overtime pay. In order to qualify for overtime exemption, a white-collar employee must meet all three of the following criteria:

  • The employee must be salaried, earning a fixed salary that is not impacted by the amount of hours they work. This is referred to as the “Salary Basis Test.”
  • The employee must earn more than $455 per week. This is referred to as the “Salary Level Test.”
  • The employee’s primary job must be to perform executive, administrative or professional duties. This is referred to as the “Duties Test.”

Any employee that does not qualify for the exemption by meeting each of the three standards is likely to be entitled to 1.5x their weekly pay divided by 40 for every hour they work over 40 each week.

So what has changed?

The DOL is raising the salary threshold in the Salary Basis Test significantly from $455 per week to $913 ($47,476 per year). They are also enacting a requirement that this threshold is to be automatically updated every three years, going forward, to meet each new standard salary level, which are equal to the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census Range. The first automatic increase will be triggered on 1/1/2020.

That latter provision is important because, prior to these changes, the DOL had not updated their overtime regulations since 2004. This ensures the threshold stays current going forward.

Also in the Final Rule, the DOL is setting the annual compensation level for highly compensated employees (HCEs) equal to the 90th percentile of earnings for full time salaried workers nationally, which is $134,000 (up from $100,000).

Finally, employers will be permitted to use nondiscretionary bonuses and monetary incentives to cover up to 10% of the employee’s salary level as long as they payments are made at least quarterly.

It should be noted that the Duties Test to determine if the employee is an executive, administrative or professional has not changed in the Final Rule.

These changes stem from a March 2014 Presidential Memorandum in which President Obama instructed the DOL to bring overtime regulations up to modern standards. The new rule becomes effective December 1st, 2016.

So, as an employer, what should you do to ensure you are in compliance without shelling out a bunch of overtime? Here are a few tips:

  • Identify which of your staff members are not exempt based on the criteria above and ensure you have complete control over their schedules;
  • Consider bumping salaried employees that are already close to $47,476 up to clear the threshold and save the overtime;
  • Re-evaluate your team structure and determine if it makes sense to add lower paid staff to support salaried workers under the threshold to lighten their workload;
  • Change salaried employees to hourly to gain greater control of overtime and potentially make up for the added cost of overtime by hourly employees working less than 40 hours occasionally if their work tends to ebb and flow;
  • Amend your budget to account for additional labor cost in new overtime if you think these other suggestions won’t work for your business.

These are just a few general ways in which an employer can counterbalance the new overtime pay rules. We hope you find this helpful and we highly recommend, if you have any questions about how these changes would impact you specifically, please contact our Employee Benefit Team Lead Teri Weber. Teri and her team of benefits and HR professionals are ready to help you stay compliant with the plethora of regulations facing your business.

Spring Short Listed for Prestigious European Employee Benefits Award

european captive services awards 2016We were very excited to find out this week that Spring has made the “short list” for a 2016 European Captive Services Awards.

The awards, presented by the highly regarded industry publication Captive Review, recognize firms “who have outperformed their competitors and peers, demonstrating the highest levels of excellence over the 12 month judging period.”

This year, Spring is nominated for Employee Benefits Consultant of the Year.  The award winners will be announced on November 7th in Luxembourg.