The Affordable Care Act imposes fees on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). PCORI is responsible for conducting research to evaluate and compare the health outcomes and clinical effectiveness, risks, and benefits of medical treatments, services, procedures, and drugs.

Plan sponsors must pay the PCORI fee by July 31 of the calendar year immediately following the last day of that plan year. All plan sponsors of self-insured group health plans will pay the fee in 2014, but the amount of the fee varies depending on the plan year.

• Calendar year plan beginning January 1, 2013 will pay $2 per covered life.
• Plan years beginning from October 2, 2012 – December 31, 2012 will pay $2 per covered life.
• Plan years beginning January 2,2012 – October 1, 2012 will pay $1 per covered life.

PCORI fees are reported annually on the 2nd quarter Form 720 and paid by its due date, July 31st. The fees are based on the average number of lives covered under the policy or plan. They apply to policy or plan years ending on or after October 1, 2012, and before October 1, 2019. The PCORI fee will not be assessed for plan years ending after September 30, 2019, which means that for a calendar year plan, the last year for assessment is the 2018 calendar year.

The types of plans that must pay the PCORI Fees by July 31, 2014 include the following:

• Health/accident plans
• HRAs with a plan year that began 1/1/2013 that are not an excepted benefit (Employer contribution is greater than $500)
• Health FSAs with a plan year that began 1/1/2013 that are not aIRn excepted benefit (Plan has employer contributions with the maximum reimbursement greater than two times an employee’s salary reduction election or employer contribution is greater than $500)
• Retiree plans

Please click on the links below to access Form 720 and Form 720 instructions.

Form 720
Form 720 instructions

If you haven’t seen them yet, chances are you soon will. Electronic signature technology – ‘e-signature’ for short – is rapidly making inroads into a variety of professional services – and the insurance industry is among the leading proponents.

The technology has many benefits both for the insurance industry and for the customers themselves:

Cost savings. E-signatures help control costs. One property and casualty insurer estimates that e-signatures reduce the cost of issuing a new policy by at least $10, and that’s just at the carrier level. Cost and time savings are even more significant when you consider that a customer or agent can use an e-signature on an emailed document much faster and more easily than driving across town to get a signature, or even emailing, printing, signing, scanning, and emailing the document back.

Fewer mistakes. An electronic process has less potential for paperwork errors to delay a policy issuance. This means less risk exposure for the client. It also means much lower administration and compliance costs for the carrier as well.

What are e-signatures? An e-signature is a safe, secure and legally binding digital fingerprint that establishes that you have viewed a document – and affixed your signature to it – except you used bits rather than ink. The signature itself consists of a digital identifier that can be used to verify that your signature came from you.

Are e-signatures secure? Yes, they are as secure as any online or digital procedure – and much more secure than a pen-and-ink signature, which can be forged later on an altered document. An e-signature not only establishes you were there, but also freezes a document in place. The document cannot be altered without removing your signature.

There are three levels to ensuring the security and validity of electronic signatures:

1. User verification. The technology authenticates the user, via a variety of possible techniques:
   Login/password combinations
   Secret questions and answers
   Third party authentication services
   “Smart cards” and PIN number combinations
   SMS codes
2. Document verification. The technology authenticates the document. It takes a snapshot of the document with the signatures in place. The file cannot be altered without your signature being removed. So if your signature is on the document, you know the document has not been altered since you signed it.
3. Process authentication. This is still in its earlier stages of development. But some e-signature vendors also have technology that verifies exactly what information was displayed to the customer, as well.

Legal background. Congress formally recognized the validity of e-signatures under the Electronic Signatures in Global and National Commerce Act (ESIGN). This law first passed in 2000, formally laying out the legal protocols and underpinnings for the validity of the electronic signature in interstate commerce.

Conclusion

The technology has not been universally rolled out yet. Some carriers and agencies are slower to adapt than others. But it is likely that substantially all major carriers and the agencies that represent them will have adopted electronic signature technology over the next few years. You can be sure that the technology is safe and legally sound.

At Cleary, we know how important a comprehensive benefits package can be to your continued success. Give us a call today at 617-723-0700 and we will work with you to create a plan that meets your business objectives, takes into account state and federal laws, and capitalizes on incentives and innovative solutions now being offered.

Presented by Michael Regan

The Commissioner of Insurance recently approved a general revision of Massachusetts workers’ compensation rates that was effective April 1, 2014, applicable to new and renewal policies. There was no change to the overall rate level; however most individual class rates will change to reflect industry group differentials.

This may not necessarily be a bad thing for you! Depending on the classifications used for your workers compensation policy the rates may increase or decrease within a range for any particular industry.

Workers’ compensation rates were last raised in 2001 by one percent. Although Loss of Wage coverage has not changed, medical costs, as we all know too well, have been skyrocketing and workers compensation rates have not kept pace. Given the recent political climate, there has not been an appetite by regulators to approve any increases.

After many years of asking for relief and not getting any, the insurance industry took a harder stance on writing workers compensation policies in Massachusetts. Some existing accounts were receiving non-renewal notices and new business was scrutinized by underwriting with a fine tooth comb. The end result was a spike in business to the Massachusetts Workers Compensation Assigned Risk Plan.

Some may see the allowance for rate changes within industry ranges, as a fig leaf offering between regulators and carriers. To the public there is no overall change, but it allows the carriers to get some rate relief in specific industries and classes that have been troublesome and the changes may better predict workers compensation losses. Bear in mind that not all rates will increase. In fact many are decreasing. For example; the rate per $100 of payroll for Electrical Wiring (code 5190) was $2.84 and is now going down to $2.74.

If you would like to review the effect of these changes on your policy please click on the following link https://www.wcribma.org/mass where you can look up the rates as well as see what other changes may impact your business.

At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. Give us a call today at 617-723-0700.

Presented by John Steiger

On March 3, President Obama announced his $3.9 trillion budget proposal for fiscal year 2015. Although the budget is more of a presidential “wish list” at this point, it includes initiatives that, if passed by Congress, could have a great impact on wealthy and middle-class Americans alike.

Social security claiming strategies

The proposed budget briefly mentions eliminating “aggressive Social Security-claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.” Many industry professionals are interpreting this to mean the end of the file-and-suspend strategy, which allows a social security claimant to file for benefits and immediately suspend them. The claimant’s spouse can then begin collecting his or her spousal benefit, while both the claimant and the spouse allow their retirement benefits to grow until age 70 using delayed retirement credits.

It’s important to note, however, that the language in the proposal is vague, and it’s unclear whether the ultimate target is the file-and-suspend strategy. Additionally, there is some question about how this change would take place—whether through an internal Social Security Administration rule change or an act of Congress. If the latter, it could take a great deal of time to implement, if it passes at all.

Tax cuts for middle-class Americans

The President’s budget proposes several tax incentives for middle-class workers, including doubling the maximum value of the Earned Income Tax Credit for workers without children, families with more than two children, and married couples, as well as expanding the child and dependent care credit.

Student loans and grants

The President also proposed student loan forgiveness for qualified taxpayers who borrow through federal programs. Any forgiven loans would be excluded from gross income. Additionally, Pell Grants would be excluded from gross income, provided that the funds are spent according to the program rules.

Loss of tax benefits for high-income individuals

As in past years, the President renewed proposals that would eliminate some tax benefits for wealthy Americans. Specifically, for individuals in the 33-percent tax bracket and higher, and those subject to the alternative minimum tax, the value of certain exclusions and deductions would be reduced to 28 percent. Additionally, the budget reintroduced the “Buffett rule,” which would require taxpayers with an adjusted gross income above $1 million to pay a tax rate of at least 30 percent on their income, excluding any charitable giving. Finally, the President proposed extending the temporary exclusion from income for forgiven home mortgage debt to January 1, 2017.

Changes to RMD rules

Another proposed change would waive the required minimum distribution (RMD) rule for individuals whose aggregate retirement plan and IRA assets do not exceed $100,000. Additionally, nonspouse beneficiaries of retirement assets would be required to fully deplete inherited assets within five years. Finally, the President proposed instituting RMD requirements for Roth accounts.

Retirement account changes

Along with the President’s proposal to institute RMD requirements for Roth accounts, contributions to those accounts would no longer be allowed after age 70½. Additionally, nonspouse beneficiaries of retirement accounts would be allowed to move funds into an inherited IRA using a 60-day rollover, as opposed to the current direct-transfer requirement. For taxpayers who accumulate retirement benefits over a certain threshold, further contributions and accruals would be prohibited. Finally, small businesses that do not offer qualified retirement plans would be required to offer automatic enrollment in an IRA for their employees.

Changes to estate and gift taxation

The budget proposal seeks to increase the maximum unified estate and gift tax rate from 40 percent to 45 percent and to reduce the exclusion amount from $5 million to $3.5 million for estate and generation-skipping transfer taxes, and $1 million for gift taxes. Additionally, the President proposed redefining the meaning of a gift transfer (by eliminating the present interest requirement) for purposes of the annual gift tax exclusion. The annual exclusion would be modified from $14,000 per donee to $50,000 per donor.

The President also proposed a minimum 10-year term for grantor retained annuity trusts; a 90-year limit on the duration of the generation-skipping transfer tax exemption; modifying the generation-skipping transfer tax treatment for health and education exclusion trusts; and coordinating certain income and transfer tax rules for grantor trusts.

Higher tax rate on investment manager income

As in past years, the President’s budget proposes taxing the carried interest portion of fund manager compensation as ordinary income instead of as a capital gain. This would increase the tax rate on that compensation from 20 percent to as much as 39.6 percent.

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John B. Steiger is a financial consultant located at 460 Totten Pond Road, Suite 600, Waltham, MA 02451. He offers securities as a Registered Representative of Commonwealth Financial Network®, Member FINRA/SIPC. He can be reached at (781) 547-5621 or at john@financialconnector.com.

© 2014 Commonwealth Financial Network®

Presented by Justin Yurchenko

Every Board of Director member needs to realize the risks of operating any organization, and how to reduce those risks with appropriate management strategies. Written and implemented risk management procedures can serve as an effective way to monitor and mitigate risk within any organization. However, when these strategies are unsuccessful, the transfer of risk should fall to your insurance policy.

Directors and Officers insurance (D&O) is an important safeguard to any for-profit or nonprofit organization. D&O protects the directors, officers, employees, shareholders (not involved in management) and sometimes even volunteers. Unfortunately, even in today’s litigious environment, only 28% of companies with revenue of less than $100 million have purchased D&O coverage. In most cases, board members do not foresee any possible litigation, which is the main reason for not purchasing coverage. This is a common misconception, as just about any board can be a sued; moreover, claims can come from just about anyone – employees, customers, board members, vendors, creditors and current clients.

At the heart of any D&O policy lies the promise to indemnify the individual directors and officers in the event they are subject to allegations of wrongful conduct within their organizational duties. The primary coverages offered under a D&O policy are as follows:

• Coverage for claims made against the company, its directors, officers, managers, employees and, sometimes, volunteers.
• Employment Practices Liability, which includes allegations such as wrongful termination, discrimination, and harassment.
• Fiduciary Liability coverage
• Employee Dishonesty coverage
• Kidnap & Ransom coverage

Choosing the right carrier and policy limits is often a difficult process. Each carrier has specialized coverage wording and exclusions. It is important to work with an experienced broker who can determine the best available combination of D&O pricing and coverage for your organizational needs.

At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. Give us a call today at 617-723-0700.