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CCH® BENEFITS — 01/20/10

Employers Take Note: Additional Taxes On Cosmetic Procedures, Simple Cafeteria Plans

from Spencer’s Benefits Reports: As the House and Senate leadership continue to discuss their differing health care reform proposals, Spencer’s Benefits Reports continues a series examining health reform provisions that would affect employer-sponsored health care plans and would take effect soon after enactment of any legislation.

This series is examining features of the legislation already passed in the House (H.R. 3962) and the Senate (H.R. 3590). These features are likely to survive in health care reform legislation and would directly affect employers. Today, an employer requirement to report health care costs and a distribution limitation on flexible spending arrangements (FSAs) are discussed.

Cosmetic Procedures

H.R. 3590: Sec. 9017 would impose on any cosmetic surgery and cosmetic medical procedure a tax equal to 5% of the amount paid for the surgery or procedure.

Currently, if an expense for cosmetic surgery is not deductible under IRC Sec. 213, then amounts paid for insurance to cover such an expense are not deductible, and reimbursement for such an expense is not excludable from income even through it is provided under an employer plan, including an FSA

The cosmetic surgery amendment would apply to procedures performed on or after Jan. 1, 2010.

H.R. 3962: There is no similar provision in the House bill.

Simple Cafeteria Plans

H.R. 3590: Sec. 9022 would provide for a “safe harbor” from the nondiscrimination requirements for cafeteria plans for small employers. The safe harbor would require that the cafeteria plan satisfy minimum eligibility and participation requirements and minimum contribution requirements. Employers eligible for the simple cafeteria plan would be those that employed an average of 100 or fewer employees on business days during either of the two preceding years.

Eligibility and participation requirements for a simple cafeteria plan would be met if:

• all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate, and
• each employee eligible to participate in the plan may, subject to terms and conditions applicable to all participants, elect any benefit available under the plan.

The contribution requirements would be met if the employer is required, without regard to whether a qualified employee makes any salary reduction contribution, to make a contribution to provide qualified benefits under the plan on behalf of each qualified employee in an amount equal to:

• a uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or
• an amount that is not less than the lesser of—

º6% of the employee’s compensation for the plan year, or

ºtwice the amount of the salary reduction contributions of each qualified employee.

This provision would be effective for years beginning after Dec. 31, 2010.

H.R. 3962: There is no similar provision in the House bill.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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