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Tax Cuts and Jobs Act | January 2018

Last month, President Trump signed landmark tax reform legislation. Throughout the legislative process, House and Senate bills contained various changes to employee benefit plans. Many of the proposed changes were removed, and the resulting final version has a somewhat minimal impact to employer-provided benefits.

Although discussion was directed toward eliminating or capping the tax exclusion for employer-sponsored health coverage, the final version of the Tax Act keeps the deduction intact—for now. Changes to the taxation of retirement accounts and 401(k) plans were threatened, but they also stay the same, as do adoption assistance and employer-provided education assistance programs.

Tax Cuts and Jobs Act

So what did change? The Tax Cuts and Jobs Act reduces the penalty charged to a taxpayer who does not carry qualifying health coverage. Beginning in 2019, the penalty is reduced to $0, effectively repealing the Individual Mandate. Importantly, the elimination of the individual taxpayer penalty has no impact to the employer shared responsibility payments. Applicable Large Employers (ALEs) must continue to offer affordable coverage that provides minimum essential coverage to at least 95% of eligible employees or pay a penalty. The 40% excise tax on certain health plans, known as the Cadillac Tax, is still set to take effect for plan years beginning on or after January 1, 2020.

The other area impacted by the Tax Act is the treatment of certain transportation benefits. Up to a specified limit, employers have been allowed to deduct mass transit passes and qualified parking  expenses. In 2017, this limit was $255. The Tax Act eliminates this employer deduction but still allows the employees to pay for qualifying transportation benefits on a pretax basis.

Conversely, bicycle commuting expenses can no longer be offered on a pretax basis to employees. However, employers can continue to deduct bicycle commuting expenses paid or incurred January 1, 2018 through December 31, 2025.

With the elimination the Individual Mandate, employer health plans may see a drop in health coverage enrollment beginning in 2019. On its own, the change to the individual penalty is not an event to allow a mid-year change to a pretax premium election. However, employees may drop coverage at an open enrollment. Employees would be well advised to retain coverage through December 31, 2018 as the penalty remains in effect for the entire 2018 year.

Employers who sponsor qualified transportation benefit plans should evaluate the impact to the plan and make corresponding adjustments to plan documents and employee withholding.

AARP versus EEOC
In 2016, the EEOC issued regulations under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). In October of that year, AARP filed suit against the EEOC asserting that the 30% incentive limitation within the rules is inconsistent with the ADA’s and GINA’s  “voluntary” requirements. The lawsuit alleged that the EEOC reversed a previous position on the meaning of “voluntary” without providing adequate support and explanation. This reversal, according to AARP, was arbitrary and capricious. AARP sought a preliminary injunction, which was denied, and the regulations became effective for plan years beginning on or after January 1, 2017.

At trial in August 2017, the Court found that the EEOC had not proven that a 30% incentive level is a reasonable interpretation of voluntariness and remanded the regulations back to the EEOC for consideration. The Court chose not to vacate the rules due to concern over the disruption to plans already following the rules.

The proposed EEOC timeline for revised rules, as submitted to the Court in October, provided that the re-drafted rules would be submitted in August 2018 and final rules would become effective in early 2021. Indicating a three-year timetable to new regulations was not what it envisioned, the Court has now vacated the incentive provisions effective January 1, 2019. In its December ruling, the Court has encouraged the EEOC to file another status report by March 30, 2018 and suggested the EEOC take measures necessary to ensure new regulations take effect long before 2021.

Although the ADA and GINA incentive provisions may be vacated on January 1, 2019, the current rules remain in force. AARP requested the court block enforcement of the rules up until the rules are vacated, but the Court declined. Thus, employers and wellness program administrators must continue to abide by the EEOC’s 2016 final ADA and GINA regulations.

Can we expect resolution and final, approved regulations before January 1, 2019? Possibly, but government agencies are not known for their speed. We may know more by mid-summer.

Some people believe this will be the death of wellness plans. It seems possible (maybe even likely) that there will not be approved rules in place in time for employers’ annual enrollment period this fall. Absent approved rules, do plans continue to offer wellness plans in hopes that such plans will have a positive on claims and employee morale, even if there is no tax incentive? Or, do employers choose to reallocate wellness dollars to employer HRA or HSA funds, or increased premium subsidies? Stay tuned!

For additional information, please contact your Account Manager or Tony Sorrentino at 402.964.5470 or

View a printable version of the bulletin here.

This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax advisor or plan provider. This information has been taken from sources which we believe to be reliable, but there is no guarantee as to its accuracy. The information provided herein is intended solely for SilverStone Group clients. You may not display, reproduce, copy, modify, license, sell or disseminate in any manner any information included in this special bulletin.

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