Following are a few important issues our accounting professionals wanted to briefly share with you. As always, should you desire more in-depth information please feel free to contact us.
OBAMACARE AND THE EMPLOYER MANDATE
We are receiving many calls from our clients regarding their employer requirements under the Affordable Care Act (aka Obamacare). Considering the complexity of the original legislation and the subsequent last minute changes made by executive authority, there is good reason for confusion. And now, add one more change. On Monday February 10, the IRS announced an additional one-year delay in the health coverage penalty for midsize employers.
Before Monday’s IRS announcement, “the employer mandate,” was scheduled to become effective in 2015 for businesses with the equivalent of over 50 full-time employees, requiring the purchase of health insurance for their workers or be fined at least $2,000 per non-covered employee. This so-called shared-responsibility penalty excludes the first 30 workers. Under the Act, a full-time employee is one who works more than 30 hours per week.
Now, per this week’s IRS announcement, employers who have 50 to 99 full-time equivalent employees in 2014 will have until 2016 to comply. These employers, however, will still be required to report on their workers and health care coverage in 2015.
The further delay to 2016 is part of new final regulations covering several aspects of the law. To be eligible for the delay, employers must not reduce their workforce or hours of service in order to qualify and they must maintain their previously offered health coverage.
For employers with 100 or more full-time equivalent employees, the new final regulations phase in the percentage of full-time workers for whom such employers need to offer the minimum essential coverage. The percentage is 70% in 2015 and 95% in 2016 and beyond. Employers with 100 or more full-time equivalent employees that do not meet these percentages will be subject to the shared-responsibility penalty for 2015.
If your business has not crossed the 50-employee threshold, you are not subject to the penalties and you are free to offer (or not) health care to your employees any way you see fit. The insurance exchanges represent a new option in terms of where to shop for health insurance if you choose to provide a health care benefit to your employees.
Some analysts are predicting that some employers will stop offering health care plans because paying the penalties can actually be less expensive than providing the coverage. This may be true initially, but we anticipate that the penalties will be adjusted upwards over time.
There is also concern that Obamacare may drive some companies to reduce employee hours to get under the “full-time employee” designation, reduce employee wages or curb new hiring to offset rising costs.
A recent analysis by the Congressional Budget Office (CBO) cites that Obamacare is projected to reduce the total number of work hours by the equivalent of 2.3 million full time jobs by 2021. The CBO reasons that some employees will voluntarily reduce their work hours or quit their jobs to take advantage of subsidized health coverage provided to individuals under Obamacare.
This projected increase in unemployment led the Wall Street Journal to negatively editorialize that Obamacare has become “The Jobless Care Act”. The White House, however, has embraced the CBO analysis as a positive, saying it will provide workers with new freedom.
Amidst all the rhetoric and confusion, one thing is abundantly clear – the issue has clearly become much more about political care than health care.
Though more changes are likely to be made, we are advising affected clients that a full repeal is unlikely prior to the effective dates of the employer mandate and that they should begin reviewing health care options.
Small businesses with up to 100 employees can shop for health coverage on government subsidized exchanges. The government maintains that these small business exchanges will offer a wide spectrum of options that will ensure employers can find good health care coverage options at low costs.
Expressing frustration with Congress, President Obama warned that he has a pen and a phone and would use his executive authority to move his agenda forward.
He just used his pen!
Following his announcement in his State of the Union speech, the White House released details of a new retirement savings account to be made available to employees through their employers.Called myRA, short for my retirement account, the administration describes it as a starter savings account, much like a Roth-IRA, targeted for low and middle income workers who are among the 50% of employees that do not have access to employer 401(k) plans.
Here are some key provisions:
- Available to households earning up to $191,000 joint / $129,000 single.
- Contributions will be made with after-tax dollars.
- Unlike a Roth-IRA, overall contributions are limited. Account holders can build savings for 30 years or until their myRA balance reaches $15,000 – whichever comes first – it then can be rolled into EBan IRA.
- Contributions can be withdrawn tax-free at any time.
- Funds will be government guaranteed.
- Accounts will earn the same interest rate that applies to the Thrift Savings Plan Government Securities Investment Fund that exists for federal employees, which last year earned 1.7%.
- Initial investment of as little as $25 and payroll deductions as low as $5.
- The plan is portable. Participants can change jobs and continue to contribute to an existing myRA through any employer or multiple employers that offer payroll direct deposit.
- Participation is voluntary, employees can opt-out.
“I’m an advocate for helping people save for retirement, so I am hopeful that a new starter savings account will help people jump-start their retirement savings,” says Weinberg’s Director of Tax, Jeffrey Engler.
“We have to question, however, why existing traditional IRAs and Roth IRAs aren’t already adequate retirement vehicles. IRAs are available and as close and convenient as your neighborhood bank. But, unlike IRAs, myRAs are government debt instruments with the government guaranteeing the investment and taxpayers paying interest,” says Engler.
“It’s true that many people won’t set up retirement accounts on their own, so having such a payroll deduction plan could help. My concern is that savers are not duped into thinking that saving $5 or $10 every paycheck will be enough, even over 30 years,” he adds.
There is also a bigger picture perspective. The Federal Reserve via quantitative easing policies has bought trillions of dollars of Treasury Bonds to keep interest rates artificially low. It now holds a mountain of low yielding bonds that will continue to lose value as overall bond rates rise on the open market. Add to that a recent comment from The Peoples Bank of China asserting that they are no longer interested in buying U.S. debt because there are better deals elsewhere.
“One must wonder if this is but one way for Uncle Sam to carve away at a portion of that mountain of bonds by dressing it up as a retirement savings account and naming it after your dear, Great Aunt Myra,” quips Engler.
“Perhaps the worst part is that these myRA dollars could be used to buy homes or make other investments that lead to individual prosperity instead of being locked away for years in government hands,” he said.
Additionally, because myRAs are patterned after the federal employees’ Thrift Savings Plan (TSP), a surprise may be in store for myRA investors. The government may (or likely will) tap into myRA funds much the same way they did with the TSP’s G-Fund when agreement could not be reached on raising the debt ceiling.
“During such debt ceiling stalemates, the government taps into other fund accounts so it can continue spending without breaking through the debt ceiling. Federal employees invested in the TSP were highly critical when government suspended investing, and instead borrowed from TSP G-Fund securities during the last debt ceiling debacle,” explains Engler.
By virtue of the President’s Executive Authority, the Treasury has been given 90 days to develop a myRA pilot program and intends to finalize development by December 31, 2014.
The White House press release says that employers will incur little cost from participating in the program.
LEASE ACCOUNTING PROPOSAL UPDATE
Comment Period Brings Negative Feedback and Possible Changes
As we reported in a previous issue of Simply Stated, The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) jointly released (last May) a revised Exposure Draft that would substantially change the way affected companies account for lease costs.
The existing accounting models for leases require lessees and lessors to classify their leases as either capital leases or operating leases and account for those leases differently.
The proposed change would require a lessee to recognize assets and liabilities for leases with a maximum possible term of more than 12 months. A lessee would recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term. Leases would be classified as Type A or B determining the method and term of reporting revenue and expense.These proposed rules would change the way affected companies account for lease costs in calculating earnings, add debt to their balance sheets, and require some companies to revise their debt agreements with lenders.
“We noted that there was strong industry opposition to the proposed changes and citied the severe impact the rules would have on affected companies,” said Corey Fischer, Managing Partner of Weinberg & Company.”
As it stands, the proposed rules would cover far more than major real estate property leases. It would also apply to leased business equipment – from a corporate aircraft to the office copy machine – potentially, just about any lease with a term over 12 months,” said Fischer. “Apparently, the SEC got substantial negative feedback during the comment period and are now re-thinking aspects of their last Exposure Draft,” he continued.
“We take these concerns very seriously,” said IASB Chairman Hans Hoogervorst, noting that the boards are now deliberating changes to the proposal including:
- Excluding small ticket items or allowing their grouping as one item
- Limiting the changes to lessor accounting
- Simplifying the distinction between Type A and Type B leases
Maintaining that, “the overwhelming majority of financial statement users have said they agree with the boards’ conclusion that leases contain a heavy amount of financing,” Hoogervorst added, “they simply want to see leases on the balance sheet and want the rigor and comparability that only an accounting standard can offer.”
SEC MONETARY SANCTIONS RISE
The U.S. Securities and Exchange Commission (SEC) reported that enforcement actions resulted in $3.4 billion in monetary sanctions for the 2013 fiscal year that ended on September 30th. That is a record – surpassing FY 2012′s record by 10% and 22% higher than FY 2011.In raw numbers, the SEC said it filed 686 enforcement actions last year. Investment advisers and investment companies led the list of enforcement actions totaling 140. Other enforcement actions include: 132 for delinquent filings, 103 involving securities offerings, 50 for market manipulation and 44 actions for insider trading.
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Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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