ERISA - The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension and welfare benefits plans in private industry. ERISA does not require any employer to establish a pension or welfare benefits plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit. ERISA requires plans to regularly provide participants with information about the plan including information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; requires accountability of plan fiduciaries; and gives participants the right to sue for benefits and breaches of fiduciary duty.

HIPPA - The Health Insurance Portability and Accountability Act (HIPAA) of 1996 was enacted in 1996. Title I of HIPAA protects health insurance coverage for workers and their families when they change or lose their jobs. Title II of HIPAA, known as the Administrative Simplification (AS) provisions, requires the establishment of national standards for electronic health care transactions and national identifiers for providers, health insurance plans, and employers.

GINA ?/strong> The Genetic Information Nondiscrimination Act was signed into law in 2008. It protects Americans against discrimination based on their genetic information when it comes to health insurance and employment.

PPACA - The Patient Protection and Affordable Care Act (PPACA) was signed into law in 2010. This Act and the Health Care and Education Reconciliation Act of 2010 made up healthcare reform. The laws focus on reform of the private health insurance market, provide better coverage for those with pre-existing conditions, improve prescription drug coverage in Medicare and extend the life of the Medicare Trust fund by at least 12 years.

Welfare Benefit Plan - A DOL required legal document that summarizes various health or welfare benefit plans including medical, health reimbursement account (HRA), flexible spending account (FSA), employee assistance program (EAP), dental, vision, disability (short and long term), some voluntary plans (AFLAC, Allstate), etc.

Summary Plan Description - This document is the primary vehicle for informing participants and beneficiaries about their plan and how it operates.

Section 125 - The Section 125 Plan provides tax savings by reducing employee medical premiums from gross salary prior to calculation of federal income and Social Security taxes, as allowed under Internal Revenue Code (IRC) Section 125.

Premium Only Plan - This document allows employees to contribute to healthcare premiums on a pre-tax basis.

Flex Plan (FSA) ?/strong> Allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in substantial payroll tax savings.

Cafeteria Plan - A type of employee benefit plan per Section 125 of the Internal Revenue Code. Its name comes from the earliest such plans that allowed employees to choose between different types of benefits, similar to the ability of a customer to choose among available items in a cafeteria.

Nondiscrimination Testing
S125 Non-Discrimination Testing ?/strong> In order to qualify for tax-favored status, a Section 125 plan must not discriminate in favor of highly compensated employees (HCEs) and key employees with respect to eligibility, contributions, and benefits. In order to document compliance an annual test must be performed and the results documented.

Highly Compensated Employee - The below are definitions for Highly Compensated Employees per S125 compliance testing?br> All employees at any time during the current plan year with more than 5% ownership
All employees who, during the current plan year, are/were officers
All employees who are highly compensated within the meaning of IRC Section 414(q), $115,000 for 2012, 2013, or 2014
All employees who are a spouse or dependent (within the meaning of IRC Section 152) of any individual listed in 1 or 2 above

Key Employee ?/strong> The below are definitions for Key Employees per S125 compliance testing...

  • Any officer with annual compensation more than $165,000 for 2012
  • Employees with more than 5% ownership
  • Employees with more than 1% ownership and annual compensation greater than $150,000

PPACA Non-discrimination Testing¹ - The Patient Protection Affordable Care Act extends the IRS nondiscrimination requirements that previously applied only to self-insured group health plans to all fully-insured, nongrandfathered group health plans effective for plan years beginning on or after September 23, 2010. According to IRS rules, plans cannot discriminate in favor of highly compensated employees. Thus, all benefits provided to highly compensated employees must be provided to all other participants. Below is an overview of what this provision of health care reform means to employers.

Highly Compensated Employee - The below are definitions for Highly Compensated Employees per PPACA compliance testing...

  • Five highest paid officers during the current plan year
  • Shareholders that own more than 10% value of the employer's stock during the current plan year
  • Highest paid 25% of all employees during the current plan year

¹ PPACA non-discrimination testing is not required for the 2011 plan year. This requirement has been postponed until further IRS guidance. You will not be charged the PPAC Non-discrimination Testing fee if you do not wish to have PPAC testing done at this time.

Form 5500 - The Department of Labor, Internal Revenue Service, and the Pension Benefit Guaranty Corporation jointly developed the Form 5500 Series so employee benefit plans could utilize the Form 5500 Series forms to satisfy annual reporting requirements under Title I and Title IV of ERISA and under the Internal Revenue Code.

The Form 5500 Series is an important compliance, research, and disclosure tool for the Department of Labor, a disclosure document for plan participants and beneficiaries, and a source of information and data for use by other Federal agencies, Congress, and the private sector in assessing employee benefit, tax, and economic trends and policies. The Form 5500 Series is part of ERISA's overall reporting and disclosure framework, which is intended to assure that employee benefit plans are operated and managed in accordance with certain prescribed standards and that participants and beneficiaries, as well as regulators, are provided or have access to sufficient information to protect the rights and benefits of participants and beneficiaries under employee benefit plans.

Schedule A ?/strong> Form distributed by insurance companies to employers for the use of filing Form 5500.

Plan Year ?/strong> Typically from January 1st through December 31st. The plan year applies to the welfare benefit plan and encompasses all policies even if the policy experiences an "off cycle" renewal date.

Calendar Year ?/strong> Policy renews annually, most commonly on January 1st

Owner - Entity, employee, or executive that possesses the exclusive right to hold, use, benefit-from, enjoy, convey, transfer, and otherwise dispose of an asset or property and has principle responsibility for a process, program, or project.

Tax Filing
C Corporation - A corporation that is taxed under 26 U.S.C. § 11 and Subchapter C (26 U.S.C. § 301 et seq.) of Chapter 1 of the Internal Revenue Code. Most major companies, and many smaller companies, are treated as C corporations for Federal income tax purposes. The income of a C corporation is double taxed, whereas the income of an S corporation, with a few exceptions, is not taxed at the entity. The taxation of the corporation's income and the separate taxation on their dividends constitute the impact of the C corporation "double taxed" treatment. The income, or loss, is applied, Pro Rata, to each Shareholder and appears on their tax return as Schedule E income/ loss. Unlike corporations treated as S corporations, a corporation may qualify as a C corporation without regard to any limit on the number of shareholders, foreign or domestic. All participants, including owners, enrolled in a health insurance plans may contribute on a pre-tax basis as long as they have an adequate S125/POP plan on file.

S Corporation - In general, S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns. This concept is called single taxation; if the corporation is taxed as a C Corporation it will face double taxation, meaning both the corporation's profits, and the shareholders' dividends, will be taxed. Owners enrolled in a health insurance plan (medical, HSA, and dental) must have their deductions post-tax, even if the S Corporation has a S125/POP plan on file.

Partnership ?/strong> arrangement where entities and/or individuals agree to cooperate to advance their interests. They are codified as Subchapter K of Chapter 1 of the IRS Code. Partnerships do not pay taxes on its income. Owners of the entity pay tax on their "distributive share" of the entity's taxable income, even if no funds are distributed by the partnership to the owners.

Sole Proprietor ?/strong> type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits, subject to taxation specific to the business, and has unlimited responsibility for all losses and debts.

LLC ?/strong> A limited liability company combines elements of a partnership and corporate structure. It provides limited liability to its owners. If there is only one member in the company, it is treated as a "disregarded entity" for tax purposes, and the owner reports the LLC's income on his or her own tax return on Schedule C. For LLCs with multiple members, the LLC is treated as a partnership and must file the IRS Form 1065. Individual partners would receive a K-1 for their share of income or losses to be reported on that owner's tax return.

Plan Administrator - The person who is identified in the plan document as having responsibility for running the plan. It could be the employer, a committee of employees, a company executive, or someone hired for that purpose.

Fiduciary - Someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.