Year-end health-care checklist.

Here's a list of some of the key issues to address as your business closes 2003 and looks forward to 2004:

New COBRA regulations: In May 2003, the Department of Labor released new proposed COBRA regulations.

Specifically, the new regulations:

* Specify the content that must be included in the Initial Notice of COBRA Rights (which is called the General Notice in the new regulations), the COBRA election notice and the COBRA election form.

* Created two new required notices: (1) Termination of COBRA notice; (2) Ineligible for COBRA coverage notice.

* Clarified the timing requirements for the delivery of COBRA notices.

These new regulations are effective for most plans on Jan. 1, 2004. If you have not reviewed your notices and procedures to verify they meet these new proposed regulations, you should make this a priority for year-end.

Change in dependent care credit: For 2003, individual taxpayers were granted an increase in the employment dependent day care expense credit from $3,000 for one qualifying dependent to $6,000 for two qualifying dependents. The percentage for determining the dependent day care credit increased to 35 percent. The credit begins to phase out at adjusted gross incomes of $15,000. These changes make claiming the dependent day care credit more attractive at some income levels than using the dependent day care flexible spending account. If your business experienced a decrease in the dependent day care account participation in 2003, this may be the reason. Since the majority of individuals who benefit from these changes are not your organization's highly compensated employees, your plan may be operating in a discriminatory fashion, violating Section 125. If your plan has not recently been tested for the non-discrimination requirements of Section 125, you should consider conducting these tests at year-end for 2003.

Group Term Life Insurance: If your organization provides company-paid life insurance, you may need to address an imputed income issue for certain life benefit amounts:

* If you provide employer paid life insurance in excess of $50,000 for any individual, you must impute income on the value of the benefit that exceeds $50,000.

* If your life insurance discriminates in favor of highly compensated employees according to Section 79 (for example, you offer three times salary as a benefit for your highly compensated employees and one times earnings for all other employees), your organization must impute income for the full value of the life insurance benefit for your highly compensated employees.

* If you sponsor an employee paid voluntary life insurance plan and the rate schedule straddles the IRS Table I rates (meaning some of your age bands are higher than Table I and some are lower), you need to impute income on the value of the life benefit for age bands that fall below Table I (below).

IRS Table I rates

Age bracket   Cost per $1,000 of coverage

Under 25              $0.05
25 to 29              $0.06
30 to 34              $0.08
35 to 39              $0.09
40 to 44              $0.10
45 to 49              $0.15
50 to 54              $0.23
55 to 59              $0.43
60 to 64              $0.66
65 to 69              $1.27
70 and above          $2.06

This is a very brief overview of Section 79. For more information, go to the IRS Website at www.irs.gov.

Short Term Disability W-2s: Prior to authorizing your payroll vendor to issue W-2s on your employees, it is important to verify with your short-term disability vendor who will issue the W-2s for any individual who received disability income in 2003. In some cases, your carrier will issue the W-2 and in some cases, the carrier will provide your organization a report to issue the W-2 on any disability payments issued by the carrier. Whichever approach is taken, it is important your organization understands its responsibilities and your employees understand how the disability income will be reported for tax filing purposes.

These are just some of the issues that your organization should be addressing at year-end. It used to be that year-end tasks were consistent year over year; however, with the legislative environment becoming more complex, this is simply not the case anymore. Rather than relying on memory, as you walk through year-end for 2003, create your own checklist to use specific to your organization's needs. As the landscape changes in 2004, you can modify your checklist items mid year as warranted by legislative actions. However, next year at this time, you will have a custom action plan in place for 2004.

Who Pays? Funding Employee Benefits

Employee Benefit Advisor 2003

                                                Company and Employee
         100% Company Paid  100% Employee Paid  Paid

Medical  13.5%               0.1%               75.0%
Dental   16.1%              16.1%               67.9%
Vision   24.6%              27.8%               47.6%
Life     64.5%               4.9%               30.6%
LTD      64.0%              19.5%               16.4%

Note: Table made from bar graph.

This information was supplied by Bill Wentworth, a principal at McGraw Wentworth, a member of the Detroit Regional Chamber.

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These pages are brought to you by the Detroit Regional Chamber's Health Care Central--the hub for all business-related health-care issues. To learn more about this exciting new initiative, visit www.detroitchamber.com or call (866) MBR-LINE.

For more articles, tips and resources on health care, visit the Detroit Regional Chamber's Health Care Central at www.detroitchamber.com.