From the November 2011 issue of Benefits Selling:

While third-party administration firms are well known for providing comprehensive administration services to employee benefit plans, brokers and agents, employers and plan sponsors may not be aware of how well suited TPAs are to handle the upcoming abundance of reporting and disclosure rules under health care reform.

W-2 health care value reporting

Health care reform requires employers to calculate and report the aggregate cost of employer-sponsored health coverage on W-2 forms. This requirement was originally scheduled to take effect for 2011 W-2s, but the IRS made this optional for 2011.  Employers must be prepared to comply for the 2012 W-2s. At first glance, this reporting rule seems straightforward, but upon close examination of the IRS guidance (IRS Notice 2011-28), you’ll see that there are many complicated nuances. 

Monthly tracking of eligibility is needed as the reportable cost for the employee for the year must take into account any change in coverage, such as a family status change, or termination or commencement of coverage. 

Many employers offer multiple plans with multiple options, provided by a variety of vendors. Cost valuations for these different plans must be gathered and aggregated on the W-2.

Timely gathering this information will be critical. Since employers must issue the W-2 forms by the end of January and the health care valuation must reflect the value of coverage through the end of the calendar year, this leaves about a week to produce the numbers for the payroll companies to process the W-2s.

Calculating the value of employee assistance programs and on-site medical clinics is required.

These are just a few of the many complexities in W-2 health care value reporting. Are employers really prepared to handle this in a cost-efficient manner? Probably not. TPAs are uniquely situated to handle this and are leaps and bounds ahead in their understanding. They maintain the plan enrollment information and have expertise in valuing health care coverage for COBRA purposes. TPAs who participate in the Society of Professional Benefit Administrators have interacted directly with the IRS regulation writers on the intricacies of the IRS guidance and have an insider advantage.

Reporting in 2014

Even more reporting will go into effect in 2014. Health care reform requires employers with 50 or more full-time employees to report the following information to the IRS. 

Whether the employer offers an employer-sponsored plan.

The length of any waiting period.

The monthly premium for the lowest cost option in each enrollment category. The employer’s share of the costs of benefits provided. The option for which the employer pays the largest portion of the cost and the percentage of cost paid by the employer in each enrollment category. The months during which coverage was available. The number of full-time employees for each month during the calendar year.

The name, address and TIN of each full-time employee, and the months during which the employee and any dependents were covered under the health plan.

This information must also be furnished to each individual by January 31.

We’ve touched on some of the new reporting tasks that will impact employers. Failing to comply with these tasks triggers big fines. For example, an incorrect W-2 health care value report will result in a $100 penalty per W-2 form with a maximum penalty of $1.5 million per year. 

In these times where productivity is key, partnering with a TPA to handle tasks that aren’t in the employer’s core business is a smart move. TPAs excel in handling these tasks given their depth and breadth of knowledge and they offer a virtuoso performance.

Anne Lennan is president of the Society of Professional Benefit Administrators, the national association of TPA firms who provide comprehensive ongoing administrative services to client employee benefit plans.