Cadillac Tax Delayed Until 2020 Under New Spending Bill

By Douglas J. Ellis, Edward C. Hammond / Dec 21, 2015
2016 Benefits Limits
 
2015 2016   2015 2016
SECTION 401(K) PLAN and SECTION 403(b) PLAN LIMITS
   
SIMPLIFIED EMPLOYEE PENSIONS (SEP's)
   
Aggregate Section 401(k) pre-tax and Roth salary deferrals by employees
$18,000 $18,000 Compensation at which plan participation is mandatory $600 $600
Maximum Section 403(b) pre-tax and Roth contributions
$18,000 $18,000 SIMPLE PLANS    
Age 50 or older "catch-up" contribution dollar limit
$6,000 $6,000 Deferral limit $12,500 $12,500
COMPENSATION LIMITS     Age 50 or older "catch-up" contributions $3,000 $3,000
Maximum annual includible compensation limit
$265,000 $265,000 PENSION BENEFIT GUARANTY CORPORATION    
STATE/LOCAL AND TAX-EXEMPT SECTION    
Maximum guaranteed monthly benefit at age 65 (single life)
$5,011.33 $5,011.33
457 PLAN LIMITS    
SOCIAL SECURITY
   
Maximum Section 457(e)(15) elective deferral dollar limit by employees $18,000 $18,000 Maximum taxable earnings subject to FICA tax:    
Age 50 or older "catch-up" contribution dollar limit (governmental)
$6,000 $6,000 OASDI portion $118,500 $118,500
ANNUAL SECTION 415 DOLLAR LIMITS     Medicare portion No Limit No Limit
Defined benefit maximum (Section 415(b)) $210,000 $210,000 HEALTH SAVINGS ACCOUNT ("HSA")    
Defined contribution maximum (Section 415(c))
$53,000 $53,000 Maximum Annual Contributions Limits:    
HIGHLY COMPENSATED EMPLOYEES
    Single $3,350 $3,350
Compensation Limit (for look-back year) $120,000 $120,000 Family $6,650 $6,750
EMPLOYEE STOCK OWNERSHIP PLANS     Catch-up (55 or older) $1,000 $1,000
Threshold amount for exception to five-year distribution requirement $1,070,000 $1,070,000 FLEXIBLE SPENDING ACCOUNTS ("FSA")    
Incremental amount for distribution beyond five years
$210,000 $210,000 Health FSA maximum annual employee contribution $2,550 $2,550
KEY EMPLOYEE IN TOP HEAVY PLAN $170,000 $170,000 Dependent Care FSA maximum (unless married filing separately) $5,000 $5,000
 
 

Cadillac Tax Delayed Until 2020 Under New Spending Bill

A two-year delay in the effective date of the "Cadillac tax" on high-cost employer-sponsored health plans is part of a massive $1.1 trillion omnibus spending bill passed by both houses of Congress and signed into law by President Obama on December 18, 2015. The legislation delays the start date of the Cadillac tax from 2018 to 2020, giving employers more time to evaluate and adopt compliant health plans, and giving Congress more time to evaluate repeal of the controversial tax.

As discussed in more detail in a previous alert, the Patient Protection and Affordable Care Act ("ACA") imposes a 40% excise tax on the cost of certain employer-provided health care plans (dubbed "Cadillac plans") that exceed a standard cap of $10,200 for annual individual coverage and $27,500 for all other categories of coverage, such as employee plus spouse, or family coverage. Prior to the delay, the Cadillac tax was scheduled to go into effect on January 1, 2018.

Almost since the passage of the ACA in 2010, opposition to the Cadillac tax has been growing in a bipartisan manner. Employers generally oppose the tax because it would impose a substantial excise tax on potentially broad-based employee health benefits and eliminate the tax advantage of providing such benefits. Unions and employee organizations generally oppose it because it is expected that employers will respond to the tax by reducing the level of employee health benefits provided to employees or shift more of the cost of such benefits to employees in the form of higher deductibles and co-pays.

The legislation also provides that any payments of the tax once it becomes effective will be tax-deductible, which reduces but does not eliminate the economic cost of offering a Cadillac health plan. In addition, the Comptroller General will consult with the National Association of Insurance Commissioners to study suitable benchmarks for adjusting the thresholds triggering the tax to reflect age and gender factors of an employer's workforce. Critics contend that the benchmark currently used - Blue Cross Blue Shield's standard benefit option under the Federal Employees Health Benefits Program - does not accurately represent national healthcare costs.

According to recent surveys of the impact of the Cadillac tax, nearly 50% of employers expect at least one of their benefit plans to be subject to the excise tax if they don't take measures to control rising health care costs. By 2020, that number increases to almost 75% of employers whose plans would be impacted by the tax.

While the delay may increase chances for ultimate repeal of the Cadillac tax, employers should still focus on evaluating and implementing better accountability, cost containment and employee education with respect to health benefits. 

If you have any questions regarding planning for the Cadillac tax or employer-provided health care, please contact Doug Ellis at dellis@clarkhill.com | (412) 394-2367; Nancy Farnam at nfarnam@clarkhill.com | (248) 530-6222; Kristi Gauthier at kgauthier@clarkhill.com | (480) 684-1300; Ed Hammond at ehammond@clarkhill.com | (248) 988-1821; or another member of Clark Hill's Labor and Employment Practice Group.