Good morning, Ladies and Gentlemen. Welcome to the People Processes podcast. I’m your host, Rhamy Alejeal, CEO of People Processes, and here we dive deep into the tools, laws and yes processes that you need to know in order to scale and grow your organization. We help organizations all across the United States streamline, optimize, implement, and revolutionize their HR operations. We’ve helped hundreds of companies and thousands of HR leaders across the world get their people processes right.
Today we’re going to talk about the SECURE Act. It changes a lot about 401k plans, so we’re going to go through it in depth, make sure you’re prepared, but before we go too deep, I want to ask you to please subscribe to our podcast. You can find us on iTunes, Google podcasts, Spotify, Stitcher, any pod catcher of your choice. You can also subscribe @peopleprocesses.com which will give you exclusive subscriber only content.
All right, let’s dive into the SECURE Act. The centerpiece of the new tax legislation is the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The SECURE Act, it’s chock full of new rules for employers that sponsor qualified retirement plans and for the employees who participate. For example, the new law expands the opportunities for groups of employers to form multiple-employer plans (MEPs). On the employee side, the new law increases the age for required mandatory retirement plan distributions from 70 ½ to 72.
Now there are a lot of things going on with the SECURE act, especially around what happens after you die with a 401k. That’s an individual planning topic and it’s really beyond the scope of what we’re gonna talk about today. Instead, we’re going to talk about those that are of particular interest to employers. That’s what we’re focusing on.
So part-timer participation, under current rules, employer-sponsored 401(k) plans can exclude an employee from participation if he or she has not worked for the employer for at least 1,000 hours in a 12-month period. Effective for plans beginning after 2020, the new law requires employers to allow long-term part-timers to make elective deferrals to a 401(k) plan if they’ve worked at least 500 hours in three consecutive 12-month periods. It does not require you to make matching or other employment contributions for these long-term part-timers. Key points are just focusing on this. You won’t need to pour through your past payroll records to identify eligible part-timers. For purposes of counting hours under the 500-hour rule, only service performed after 2020 is required to be taken into account. Nevertheless, you need to update your payroll system to pinpoint eligible part-timers going forward. It’s a new test. You got to do not just the thousand hour test, but also 500 over three years starting in 2020. Okay. That’s a big change. It adds a big layer of compliance and regulation. Hopefully you have a good CPA that’ll take care of that for you, but make sure to poke them.
Alright. Automatic enrollment. Another big change. Employers that sponsor a 401(k) plan or a SIMPLE IRA for that matter can automatically enroll eligible employees in a plan unless the employee is locked out. The SECURE Act creates a new tax credit for employers that establish new 401(k) plans that include automatic enrollment or that convert an existing plan to an automatic enrollment design. The amount of the credit is $500 per year for each of the three tax years beginning with the first year that the employer adopts automatic enrollment feature.
New tax credit applies for tax years beginning after 2019, so employers can begin to cash in on the credit this year. For a new plan, the credit applies in addition to the small employer pension plan startup credit for small employers that adopt a new qualified retirement plan. Moreover, for tax years beginning after 2019, the maximum amount of that credit is increased from $500 to as much as $5,000 per year for three years. So there’s two big credits at play there. One, well, a small $500 bucks. But if you look at your cost of setting up an IRA, a retirement plan, and you put in an automatic deferral right where they can opt out, instead of doing the traditional way, you’re gonna get $500 bucks from the government. Pretty cool. If you’re a brand new plan, truly new, and you’re not just making a change and you’re a small business, you could actually get an additional tax credit on top of that. Talk to your CPA.
Okay. There’s also a little bit of a change with “safe harbor 401(k) plans” that include automatic enrollment in order to meet nondiscrimination requirements. These plans, safe harbor plans, must provide for automatic enrollment at a default percentage of compensation that increases each year (e.g., 3% for first year at least to 6% in the fourth year). A plan can provide for higher default rates. However, under prior law, the default rate could not exceed 10% for any year. The new law increases the default percentage cap to 15% for any year after the first year of automatic enrollment. So that’s basically not the first year, but if you want to continue to step up people’s investment by 1% a year, unless they opt out, you can now go up to 15%.
All right. Last big change. Retirement plan, distributions and loans. Distributions from quality qualified retirement plans, 401(k) are generally included in income for the year of the distribution before the plan participant has reached 59 and a half is generally subject to a 10% penalty tax.
There are a number of exemptions to the 10% penalty though, but there’s a new one created by the SECURE Act for distributions made on account of birth or adoption of child. Effective for distributions after 2019, the penalty tax does not apply to a distribution made during the one-year period beginning on the date that the participant’s child is born or that the legal adoption of an adoptee is finalized and shall put it either adoption date of birth date. You got one year around there.
Provided certain requirements or met, loans from qualified retirement plan are not treated as taxable distributions from the plan and are not subject to the 10% tax penalty. Assuming again that if you turn it into a distribution, the SECURE Act cracks down on arrangements that allow employees to access plan loans using credit cards or similar mechanisms. Effective for loans made after just December 20, 2019, plan loans distributed through credit cards or similar arrangements will not meet the requirements for plan loan treatment and will be treated as taxable distributions. It’s not a common thing, but a lot of weird companies were kind of doing some stuff like being able to access your 401(k) balance through a credit card and it matches up to a loan. They basically disallowed those. If you do it, it’s just a distribution now.
Okay. All right. That’s the key stuff. A general rule, taxable retirement plan distributions are subject to income tax withholding, right? We talked about that and that extra 10%. However, in most cases, plan participants can elect not to have withholding applied. Tell them that this role participants must be provided with a notice of the right to elect no withholding. Under prior law, the penalty for failure to provide that required notice was $10 bucks for each failure, up to a maximum of $5,000 effective for notices after December 31, 2019, the penalties increased for $100 for each failure up to a maximum of $50,000 for the calendar year. So that’s the one other kind of little compliancy change. Make sure that they’re getting their notice of the right to elect no withholding if they are doing a distribution.
Not most people don’t do distributions of course, unless they’re leaving your employment. Anyway, let’s recap real fast. The retirement plan changed the part-time participation rules to add long-term part-timers. It gave credit for automatic enrollment and for safe harbor plans. You can now by default, when you do a safe harbor plan with automatic enrollment, you actually increase by 1% per year automatically and you can now go up to 15% instead of 10, and they added a qualified distribution. You can take money out of your retirement plan without paying income tax, but you don’t pay the extra 10% penalty in the year that you have a child or adopt one. Finally, there’s a bunch of penalty increases, especially around not providing that notice of no withholding.
I hope that was helpful for you. Again, my name is Rhamy Alejeal. People Processes work on things like this all the time. We work on the systems and operations around keeping, attracting training, finding the best people in your industry, and I hope this sort of information is helpful to you. If it is, drop me a line, Twitter, Facebook, LinkedIn, we are available on all of them. Instagram, I’d love to hear from you. Feel free to ask questions there. In the meantime, my name is Rhamy Alejeal and I appreciate you tuning in. Time for you to go out there, get your work done, and have a great day.
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Good morning, Ladies and Gentlemen. Welcome to the people processes podcast where we dive deep into the tools, laws, and yes processes that you need to scale and grow your people processes. I’m your host, Rhamy Alejeal, and I’m the CEO of People Processes. My company helps organizations all across the United States streamline, optimize, implement, and revolutionize their HR operations. We’ve helped hundreds of companies and thousands of HR leaders across the world get their people processes right. Today, we’re going to be answering some questions that have been submitted either by our clients or through our social media. Please check us out over at Facebook, Twitter, Instagram, LinkedIn. You can find the links at peopleprocesses.com where you can ask any questions like these that are going to come up in our Q&A today. Specifically, we’re gonna be talking about FMLA and workers’ compensation. We’re going to be talking about required religious holidays and a few more topics. Before we dive too deep, though, I want to ask you, please subscribe to our podcast. You can find us on iTunes, Google podcasts, Stitcher, Spotify, pretty much any pod catcher of your choice. You can also subscribe at peopleprocesses.com which will give you exclusive subscriber only content.
Now let’s dive in. Okay. First question.
Are employers required to grant employees time off from work for religious holidays?
That’s a good question. Title VII of the Civil Rights Act. It says that covered employers must make a reasonable accommodations for employees religious observances. So if you fall under title 7, which generally applies to employers with 15 or more employees, though many state laws create similar obligations for smaller employers. But at a federal level, 15 or more, you fall under the title 7 of the CRA. The act clearly States that, an accommodation for an employee’s religion must be made. The only way you’re out of that is, if the employer can demonstrate that they are unable to reasonably accommodate the religious observance without undue hardship. So that means upon request, you would open a file, you would look at it, you would say, this is the request, this is the burden on the company. We cannot support that burden. That burden is undue.
According to the EEOC, an accommodation may cause undue hardship if it is costly compromises workplace safety, decreases workplace efficiency, infringes on the rights of other employees or requires other employees to do more than their fair share of more than their share, no fair of potentially hazardous or burdensome work. So the way I would do it if you’re a smaller company and you’re worried about this. Request, wants religious holiday, employee name, date of request, who was requested to a manager name or whatever. And then the HR or a small company business owner stick this definition right there at the top. EEOC says this and then determination. This would or would not cause undue burden. And then resolution granted leave. One thing to know. Federal law does not require employers to compensate employees at all for time taken off in observance of a religious holiday practice or belief. So if you don’t have a PTO policy or something like that, you can let them off unpaid.
However, an employer must offer the same options for religious holiday requests as it does for other time off requests. So you have to let them use their PTO if they’re going to use that, whether it’s vacation or personal leave, those sorts of things. Hope that answers your question. Again, start a file. Do your EOC check on undue burden. Make your determination. You do have to check it though.
Okay. Next question.
Can an employer require its employees to use their accrued PTO during an employer-required lay-off or time-off or furlough? And If salaried exempt employees worked during the furlough, how is pay calculated for these employees?
Okay, those are good questions. An employer can require employees to use PTO accrued, if that’s vacation or personal, whatever it is during a furlough, during a layoff. If an employer has no accrued time off, the employer can even put the employee into a negative pay leave balance if you would like. So you could continue paying them, let it go negative, require that be paid back upon resumption of work. Even while furloughed, however, FLSA applies to employees. So the fair labor standard act mandates compliance with the salary basis requirement for salaried exempt personnel. So if an employee performs any work during that week period, for a salary basis employee FLSA exempt, the employer may not dock the employees pay for the absence. When a furlough is for one week or more a full week, something like that. Federal law generally does not require payment to the employee. So if you’re going to lay someone off or you’re gonna have to do a temporary shutdown for a low, you’ve got to look at whether they’re salaried or hourly. If you’re going to do salary, you got to pay him for the whole week period if they work any hour of that week. One thing to also keep in mind that I didn’t ask about this, but during a furlough for the legal term of that, you are required to continue occurring vacation days, sick days, personal days, and to continue to receive other benefits such as health insurance. So hope that helps you out there.
Does workers’ compensation leave count against an employee’s FMLA leave entitlement. And how do temporary disability plans fit within the Family Medical Leave Act?
Okay. Let me clear something up. FMLA leave a family medical leave act. It protects the employees job and benefits during the leave for up to 12 weeks in a 12 month period. There are some exceptions to this. The spousal exemption is actually my favorite, most common, where you share these things in a lot of ways with a employed spouse at the same organization. But the key is FMLA leave is unpaid. It’s a job protection and benefits. It is not related to pay. Workers’ comp provides for treatment for a work related injury or illness and partial wage replacement. So it’s a disability policy. It would run concurrently at the same time with leave under the FMLA at leaves you, what you should do is designate the leave is FMLA.
As soon as FMLA leave starts, as soon as that eligible workers’ compensation illness or injury starts and it requires that the employee be out of work, it starts then. That’s their 12 weeks of protection. But the pay is related to the worker’s comp. If your company, if your employee qualifies for any sort of partial disability plan, whether that’s workers’ comp or some other disability plan, it’s going to run concurrently with FMLA leave disability plans, workers’ comp, they provide for wage payment. FMLA provides for job and benefits protection, but not pay. Hope that clears up for you. In the process of our last question of the day. Hope this has been interesting to you so far.
In the process of auditing I-9s, we found some I-9 forms containing incomplete or inaccurate information. What should we do?
Okay. You do not want to get new ones. Let’s start with that. If information on an employee’s I-9 is incorrect or incomplete, you can make corrections near the incorrect or incomplete space in the employee’s I-9 that had the errors. The employer and the employee have to work together on it. What you want to do is draw a line through the inaccurate information, write the correction on the form using a different colored pen. If you did this digitally, you need to print the copy, do this on paper, scan it back in. Okay. So anyway, I’m sorry. I printed it off, draw a line through the inaccurate information, right? The correct information on the form. Use a different color pen and then initial and date the correction, both the employer and the employee. Missing information should be provided initial dated and a written explanation. I’d put it on the front as to the reason for the change attached, not on the same form, like an extra one.
I would make a note that the file was a self-audit that was completed on that date. So if you have like five or six changes or 50 or 60 changes to make, I do your I-9, I’d put up, you know, internal memo in a self-audit was completed on December 31 2019. The following twenty I-9s had corrections brought with the employee, make those pieces, make sure the signature relates to the attestation. So remember that there’s a signature line of the I-9. It says, “I attest under penalty of perjury…” So you want to put that, you want to make sure you’re signing near there. If you have a cover letter, you want them to sign on top of it. I wouldn’t do that. I would just have them initial and date the corrections and sign at the bottom
If your company is audited, the examiners will want to have proof that you exhibited good faith effort to audit your records and correct the deficiency. So it’s a good thing to do. You’re not going to get me in worse off shape. Having audited founded errors and corrected them. You just want to make sure that it’s obvious that you’re not covering it up. You used a different color pen. You got it straight, cleared up, made a note, signed at the bottom. It’ll take care of you.
Okay, ladies and gentlemen, that’s it for today. I hope that was helpful to you. I hope you learned a little something. Please check us out on our social media pages and subscribe at peopleprocesses.com or on the pod catcher of your choice. We’re going to be coming out with episodes every week. We’ve got a lot of interviews coming up for 2020. I’m very excited to get to know some of our new guests and share their wisdom with you. Thank you so much for tuning in. My name is Rhamy Alejeal. Now it’s time for you to go out there, have a great day, and get your work done.
Good morning, Ladies and Gentlemen.
Welcome to the people processes podcast where we dive deep into the tools, laws and processes that you need to scale and grow your people processes. I’m your host, Rhamy Alejeal and I’m the CEO of people processes. My company helps organizations all across the United States streamline, optimize, implement, and revolutionize their HR operations. We’ve helped hundreds of companies, thousands of HR leaders across the world get their people processes right. Today, I’m excited to dive in a little bit into a new Trump department of labor health and human services regulation that talks about insurance regulation, how fun, how sexy, how crazy, but this insurance regulations a little different. It says that insurance companies are going to have to disclose how much you will pay for a service before you get it. Whoa. Before we dive too deep, I just want to ask you to please subscribe to our podcast. You can find us on iTunes, Google podcasts, Spotify, Stitcher, pretty much any pod catcher you like. We’re there. You can also subscribe to peopleprocesses.com which is what I love because we give you exclusive subscriber only content in there, like our new on-boarding checklist for 2020 with updated information about the four pretty cool setup. Check it out at peopleprocesses.com.
All right, let’s dive right into this thing. So what is Trump doing? Okay. On November 27th, 2019 the U S department of labor, health and human services and the treasury jointly issued a proposed rule. That rule is actually linked on the peopleprocesses.com website if you want to read it in depth yourself. That rule is going to require group health plans and health insurance issuers in the individual and group markets to disclose price and call sharing information upon request to participants, beneficiaries and enrollees or their authorized representatives.
So that means your actual plan participants, your employees, their spouses and their kids, if they ask the proposal would give consumers real time personalized access to call sharing information including an estimate of their call sharing liability for all covered healthcare items and services through an online tool that most group health plans and health insurance issuers would be required to make available to all of their members and even in paper form at the consumer’s request. Good Lord, I can’t even imagine. Maybe that’d be a two week process to get a letter in the mail or something. This is going to help consumers compare costs between specific providers before receiving care. So imagine you know you need a knee surgery rather than knowing your deductible and your out-of-pocket and assuming, all right, well this is gonna max it out or maybe it will be less or Hey, my doc said it’d probably be around three grand and then trying to figure out what that would mean.
You could use the online tool, look up specific pre-negotiated rates with specific carriers or with your insurance carrier, with specific providers and get an actual estimate of what you would pay given your deductible spend so far, your max deductible, your max out of pocket, your co-insurance rate and their negotiated rate with that provider. It would allow you to shop providers. This could be huge. Together the agencies concluded that the additional price transparency efforts are necessary to empower a more price conscious and responsible healthcare consumer, promote competition in the healthcare industry and lower the overall rate of growth in healthcare spending. Look, I don’t care what your politics are. Healthcare spending has gone crazy for a long time. Really since the mid 2000’s before Obamacare. Though Obamacare really added some costs in there too. It’s been a roughing and one of the reasons is that employees and just consumers in general can’t shop you.
It’s like you went to best buy and you had to just trust the best. And he’s like, I want a TV. And then he goes and picks it for you. And you can’t go compare that to Amazon and you don’t get any pre-estimates. It’s just price transparency is going to be if this is able to be implemented, which no guarantees. But if this rule is able to implement it, it is the first true movement to lowering the cost, the true cost of healthcare in this country. Not what people pay individually, not what companies pay. And I would ensure his pay but just the overall cost. So everybody benefits that. I’ve seen at least since I started in this business about 10 years ago. The proposed rule includes two approaches to make healthcare price information accessible to consumers, allowing for easy comparison shopping.
So these are the two things they’re going to do. First, each non grandfathered group health plan or health insurance issuer offering non grandfathered health insurance coverage in the individual and group markets. So basically everybody who’s not unlike an old plan pre 2013 would be required to make available to participants, beneficiaries and enrollees personalized out of pocket cost information for all covered healthcare items and services. Through an internet based self service tool and in paper form upon request. For the first time, most consumers would be able to get estimates of their call sharing liability for healthcare for different providers, allowing them to both understand how costs for covered healthcare items and services are determined by their plan and shop and compare costs for healthcare before receiving care. Second, each non grandfathered group health plan or health insurance offering non-grant grandfathered individual coverage would be required to make available to the public, including stakeholders such as consumers, researchers, employers and third party developers.
The end network negotiated rates with their network providers and historical payments have allowed amounts to out of network providers through standardized regularly updated machine readable files, I. E. big giant databases that I can turn into proposals. This would provide opportunities for innovation to dive, to drive price comparison, consumerism in the healthcare market. That would be huge. Knowing what the usual and customary out-of-pocket spend is something that’s nearly opaque right now. Even for someone like me who’s in the industry quoting hundreds of companies, working with hundreds of companies every year, being able to see the actual, like you would get a proposal and be like, this is your deductible, your out of pocket maximum and here’s a sampling of negotiated rates for providers in your area. That makes a huge difference. In conjunction with the proposed rule, the DOL posted three appendices to its website.
The model notice proposed data elements for the negotiated rate machine readable file and proposed data elements for the allowed amount. That’s the out-of-pocket or the out of network stuff in machine-readable files, so they actually said, not only do we want you to do it, here’s the notice we want you to put out and here’s how we want your data to look so that everybody can read it. Those came out. That’s the big news for you as a consumer of healthcare. Now there’s a couple of other little things. They changed up how the MLR works. The medical loss ratio basically saying if you can provide information that lets people save money, the insurance company doesn’t have to necessarily rebate that as an MLR. They can split it with the consumer. So basically it frees up a little bit like right now, most MLRs are 80%.
So whatever dollars come into the insurance company, 80% has to go to spend on actual medical payments. This is saying, look, if you can actually lower the cost of health insurance and people are using these tools, we’ll let you go a little bit above 80%. This gives an insurer the incentive to make the system good instead of some just, you know, crappy website that no one ever uses because no one can ever find it. When they do, it doesn’t work. We don’t want that. So it also provides an incentive knowing that a lot of this cost of publishing this information is going to disrupt insurance services and presidents and other, it says if you do it well and it saves people money, you can make a little bit more too.
Now, when would the start? All components of the role would be applicable for plan years beginning on or after one year after the finalization of the rule. So the rule is not final yet. A commons are due on or before January 14th, 2020. So if you really think about this and you want to comment on it, we’ll have a link to our website. We can actually go online and comment to the federal government, department of labor, the joint task force on this and tell them what you think. Those comments are going to be up. You can do them up to January 14th, 2020 and then after that there’s normally a 90 day review period and then the law would go into effect unless they revise it. If that’s the case, then by 2021, we could have this kind of transparency. It would be a game changer, an absolute game changer.
So, you know, wherever your politics are, I gotta say I’m super excited about this. I think it would give us so much more information going in. So keep an eye out. If next fall you renew if you’re a January 1 renewal, so not 2020 that we’re already done with, but 2021 keep an eye on this because your 2021 proposal may be completely different and if your broker isn’t necessarily providing that information to you, you want to shop around, take a look around because this could be the biggest deal in terms of selecting health plans in a long time. My name is Rhamy Alejeal, I’m the CEO of peopleprocesses. We help companies all over the U S with things like on-boarding, payroll, timekeeping, and of course employee benefits. We can help you find and select the best plans for your organization, communicate them, enroll them, handle all the paperwork and talk to each and every one of your eligible employees with one of our licensed benefits counselors whose only job is to help employees understand this stuff. If you’re interested, drop us a line at surfaceatpeopleprocesses.com or at peopleprocesses.com you can book an appointment directly. We’d love to help you out there. In the meantime, it is time for you to go out there, have a great day, and get your work done. Thanks for listening.
Appendices. In conjunction with the proposed rule, the DOL posted the following three appendices to its website:
- Proposed Transparency in Coverage Model Notice
- Proposed Data Elements for Negotiated Rate Machine-Readable File
- Proposed Data Elements for Allowed Amount Machine-Readable File.
5Proposed Rule: Transparency in Coverage, 26 CFR Part 54, 29 CFR Part 2590, and 45 CFR Parts 147 and 158; 84 FR 65464, November 27, 2019; https://www.govinfo.gov/content/pkg/FR-2019-11-27/pdf/2019-25011.pdf.