Year-end spending package has big impacts on employer benefit plans
The year-end spending packages passing through the House and Senate include the long-awaited repeal of the Affordable Care Act’s excise tax, commonly known as the Cadillac tax, as well as the bipartisan SECURE Act, which aims to increase employee access to retirement plans.
The Cadillac tax, which has been delayed by Congress twice, was set to go into effect in 2022. As the spending bill heads to President Donald Trump’s desk, it appears to be the final punt down the line of the healthcare tax—a welcome move for employers.
The Senate voted 71-23 on Thursday to approve the legislation. The House approved the same measure Tuesday by a vote of 297-120. Trump is expected to sign the bill by Friday.
The tax, which is among the least popular provisions of the healthcare-reform law, would have imposed a 40% levy of each employee’s health benefits above a certain threshold, adjusted annually for inflation. In 2022, the tax will be triggered when the cost of an employer plan surpasses $11,200 for an individual and $30,100 for a family. The cost is calculated based on spending on total health benefits, such as the average cost of the plan, employer contributions to a health- or flexible-spending account and the value of coverage in certain on-site medical clinics.
Business groups have advocated for repeal of the Cadillac tax.
“Any tax that raises the cost of health benefits will harm the millions of working Americans and their families who rely on and value employer-sponsored health coverage,” Brian Marcotte, president and CEO of the National Business Group on Health, said before the Senate’s passage.
According to the NBGH’s most recent survey of large employers, nearly three in four respondents (73%) have had at least one plan that would trigger the excise tax in 2022 and 94% would in 2026.
“We can’t tax our way out of this problem. Roughly 30% of healthcare spending is wasted on unnecessary or poorly delivered care. Congress should focus on the drivers of medical inflation and unnecessary costs rather than taxing employees and employers,” Marcotte added.
Echoing NBGH, the Employers Council on Flexible Compensation, an advocacy group of tax-advantaged benefit programs, praised the move by Congress.
“Repeal of the Cadillac tax continues to be one of our highest legislative priorities,” said Martin Trussell, ECFC executive director. “We want to thank Congress and the administration for recognizing the deleterious effect that the Cadillac tax would have on employer sponsorship of healthcare plans, especially consumer-directed health plans, and for repealing the tax.”
The statute is being interpreted under guidance issued by the Treasury Department and IRS to require the contributions made by individuals into their HSAs and FSAs to be deemed as if they were provided by the employer for purposes of calculating the tax,” said William Sweetnam, legislative and technical director for the ECFC.
“As a result, employers are curtailing or eliminating employee contributions to FSAs and HSAs in order to avoid triggering the Cadillac tax. The repeal of the Cadillac tax will stop this trend and employees will continue to take advantage of these consumer-directed health plans,” he said.
Boosting financial readiness
In addition to the excise tax’s repeal, the spending bills also included the SECURE Act, expanding access to workplace retirement plans for millions more full and part-time workers, particularly small business employees.
The bill expands opportunities for workers to obtain guaranteed lifetime income products, increases the age at which required minimum distributions must be taken from retirement accounts and repeals the age limit for IRA contributors—all of which can help ensure that retirees do not outlive their retirement savings, according to the Insured Retirement Institute.
“Our optimism that the SECURE Act would pass this year never wavered,” said Wayne Chopus, president and CEO of the institute. “We continued to work tirelessly to pass this common-sense solution to help expand opportunities for Americans to save for a secure and dignified retirement. At long last, this is now a reality.”
The SECURE Act expands access to workplace retirement plans through open multi-employer plans or MEPs. This mechanism will permit small businesses to band together, pool their resources and share the costs to provide a retirement plan to employees.
The measure also beefs up certain plan features such as auto-enrollment and auto-escalation, allowing employers to enroll employees automatically into a retirement plan at a 6% rate of salary contribution, instead of 3%.
The provision also permits employers to increase employee contributions to the retirement plan up to a maximum of 15% of an employee’s annual pay. Employees can opt out of these features at any time.
“The bipartisan deal struck by congressional leaders is a victory for millions of Americans who receive health and financial security through employer-sponsored benefit plans,” American Benefits Council President James Klein said.