As we get ready for 2020 (and beyond) here are five hot employee benefits ideas to implement in order to make your employee benefit plan administration easier:
1. Adopt (or update) Cafeteria Plan and Wrap Plan Document for Health and Welfare Arrangements
In order to allow employees to choose to pay pre-tax money for their portion of health and welfare plan premiums, employers must adopt a written plan document, which is known as a “Cafeteria Plan” or “Section 125 Plan.” Employers of all sizes have cafeteria plans because they include cover medical plans, prescription drug programs, dental plans, vision plans, and flexible spending accounts. However, many employers do not have a formal Cafeteria Plan which outlines the specific details including a description of the benefits covered under the plan, participation rules, and procedures for benefit elections. This lack of appropriate documentation can become an issue in the diligence process if the company is being sold or if discovered by the IRS in an audit.
The other type of health and welfare plan document that employers need to think about is a “Wrap Plan.” A Wrap Plan is a document that is used to supplement already existing programs by wrapping them all together into a single plan document that incorporates all of the language required by ERISA and combining all of the individual benefit documents and certificates into one plan. In addition to the benefits included in a Cafeteria Plan, Wrap Plans typically add life insurance and disability plans. The huge benefit of a Wrap Plan is that by combining a company’s health and welfare arrangements into a single Wrap Plan employers can file one single Form 5500 with the Department of Labor rather than individual Forms 5500 for each and every health and welfare plan. If you are frustrated with having to prepare and file multiple Forms 5500, a Wrap Plan is an easy solution to needing only one Form 5500 for all health and welfare plans.
2. Consider Re-Enrollment in 401(k) and 403(b) Plans
By now, most large 401(k) and 403(b) plans have automatic enrollment features in which employees who do not affirmatively elect to either participate in or opt-out of retirement plans are automatically enrolled to contribute pre-tax employee contributions to the plan. However, most employers do not take action on employees who initially opt out of automatic enrollment, leaving those employees out of retirement plan participation. In addition, the most common error that we see in 401(k) plans is the failure of an employer to implement an employee’s 401(k) election, which can often result in the employer needing to contribute an employer contribution to correct the error.
We are starting to see employers implement a “re-enrollment” procedure in which they perform an automatic enrollment specific to current employees who are currently not contributing to the 401(k) or 403(b) plan. This can get employees who chose not to participate in the plan in a prior year back on track for retirement savings and mitigate any potential corrections for employees who should have been automatically enrolled in the past but were not. You can also think about implementing this automatic enrollment feature to coincide with your annual pay increases so that employees do not see as large a hit to their immediate take-home pay.
3. Simplify 401(k) and 403(b) Plan Compensation
Many employers often implement complicated procedures for determining what types of compensation are included or excluded in 401(k) or 403(b) plans, such as excluding bonuses, commissions, and all other types of pay. This often leads to operational errors that need to be corrected. It also results in huge headaches in nondiscrimination testing time when you have to provide your third party administrator with reports showing multiple types of compensation. You can simplify plan administration and nondiscrimination testing by simply counting all W-2 compensation toward your retirement plan.
4. Start Thinking About Affordable Care Act Reporting Now
Employers with 50 or more full-time employees are subject to very burdensome reporting requirements must complete the IRS Forms 1094-C and 1095-C and send them to the IRS and employees. The forms are difficult to complete and contain robust information on who was offered coverage, whether the coverage was affordable, and the reasons why any employee was not offered coverage. This data must be completed by January 31, 2020, for the 2019 plan year. We are seeing many employers get data on these forms incorrect and it is resulting in those employers getting very large bills from the IRS for penalties for violating the Affordable Care Act. Employers then need to re-create their data from scratch in order to show they do not owe any penalties.
You should start working on cleaning up your data for the Affordable Care Act reporting now to avoid this issue. To get ready for Affordable Care Act reporting you can start preparing your total number of employees for each month, your total number of full-time employees each month, based on the Affordable Care Act’s tracking of who is a full-time employee, the average number of hours worked by each employee, whether medical coverage was offered to each employee on a monthly basis, the monthly cost for the lowest type of coverage and whether that met the Affordable Care Act’s minimum value requirements, and whether you offered coverage to at least 95% of your full-time employees on a monthly basis.
5. Get Your 401(k) or 403(b) Plan Participant Count Under 100 (or 120) Participants
401(k) and 403(b) plans that are “large” plans are subject to an annual audit requirement, which is an expensive and time-consuming process. A “large” plan is one that has over 100 participants, but a plan that filed a Form 5500 in the prior year as a small plan can continue as a small plan if it has under 120 participants. If you can keep your plan under the 100 (or 120) participant threshold by the end of your plan year you can stay as a small plan and avoid the annual audit requirement. Some strategies for reducing your participant count include encouraging terminated employees and beneficiaries to receive distributions of their balances, forcing participants with balances under $5,000 out of the plan, or amending the plan to limit the number of eligible employees.