1. For a copy of the following presentation, please visit our website at www.UBAbenefits.com. Go to the Wisdom tab and then to the HR webinar series page.

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3. This presentation provides general information regarding its subject and explicitly may not be construed as providing any individualized advice concerning particular circumstances. Persons needing advice concerning particular circumstances must consult counsel concerning those circumstances. Indeed, health care reform law is highly complicated and it supplements and amends an existing expansive and interconnected body of statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.). The solutions to any given business’s health care reform compliance and design issues depend on too many varied factors to list, including but not limited to, the size of the employer (which depends on complex business ownership and employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether its employees work full time or part time, the importance of group health coverage to the employer’s recruitment and retention goals, whether the employer has a collectively-bargained workforce, whether the employer has leased employees, the cost of the current group health coverage and extent to which employees must pay that cost, where the employer/employees are located, whether the employer is a religious organization, what the current plan covers and whether that coverage meets minimum requirements, and many other factors. IRS Circular 230 disclosure: Any tax advice contained in this communication (including any attachments or enclosures) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication. (The foregoing disclaimer has been affixed pursuant to U.S. Treasury regulations governing tax practitioners.) 3

4. Kathleen Barrow, Shareholder(Rapid City) o Over 20-years experience in ERISA employee benefit, executive compensation and employment-related tax matters o Practice focuses on employer and plan defense of IRS and DOL audits of plans, payroll and compensation systems o Over 10-years experience litigating employee plan and compensation-related tax issues before the United States Tax Court, US District Courts and Courts of Appeal o Has trained over 5000 employers nationwide on issues arising under the Affordable Care Act 4

5. If you are an “ Applicable Large Employers” o If so, you are required to offer to “substantially all” of your Full-Time employees and their dependents minimum essential coverage that is affordable, and provides minimum value in order to avoid any potential penalties o The decision to provide compliant coverage, or pay the penalties, is often referred to as “Play or Pay” o The rules are now effective 1/1/15 for employers with over 99 full-time plus full-time equivalent employees; Non-calendar year plans of the larger Applicable Large Employers must comply as of the first day of the plan year commencing in 2015 (subject to safe harbor relief) 5

6. Calculated per month Calculated: # of FTEs during the month-80 employees for 2015 for employers entitled to safe harbor relief For employers not entitled to safe harbor relief calculated # of FTEs during the month-30 Margin of error for 2015 is 30% of FTEs offered MEC After 2015 (assuming no further transition relief), margin of error is 5% or 6

7. Penalty is calculated based upon the number of employees who either find the employer plan is not affordable or does not provide minimum value AND go to the Healthcare Exchange and receive a subsidy Penalty is capped by the amount of the Code section 4980H(b) penalty Penalty is $250 x number of employees who enroll in the Healthcare Exchange and receive subsidy, subject to the cap For employee who works for more than one ALE—the ALE for whom the employee works the most hours will be assessed the penalty 7

8. Penalties under ACA are assessed and collected the same as taxes ALE will receive a notice of assessment of penalty ALE may file a protest of penalty ALE may proceed to IRS Appeals if protest is not resolved If protest not resolved on appeal, ALE may proceed to Tax Court or pay the penalty and seek a refund via the administrative process and the Court of Claims or District Court Code § 6056(a) mandates that ALEs file a report on each of their full time employees with regard to the making of an offer of minimum essential coverage that is affordable and has minimum value. Code § 6056(c) requires that the report be made as to each full-time employee and that a copy be delivered to each full-time employee. 8

9. Treasury Regulations promulgated under Code § 4980A provide that service rendered by an employee to more than one employer member of related employers (i.e., an Aggregated ALE Group) be counted across all ALE members and aggregated for purposes of determining whether that employee is “full-time.” Treas. Reg. 54.4980H-3. However, each of the ALE members must separately report offers of coverage and enrollment information concerning that employee on Form 1095-C—even when there is just one group health plan providing coverage for that employee. Treas. Reg. § 301.6056-1(c)(2) provides that an ALE member of an Aggregate ALE Group must report on employees for that member (Form 1095-C). An authorized transmittal of the aggregate of employee information of the Aggregate ALE Group on Form 1094-C must also be submitted to the IRS. The Form 1094-C is a summary report that an ALE must file showing the group health plan coverage of all employees. 9

10. Employers must report certain compliance failures on Form 8928 A failure to provide a level of coverage of the costs of pediatric vaccines (as defined in section 2612 of the Public Health Services Act) that is not below the coverage provided as of May 1, 1993 A failure to satisfy continuation coverage requirements under section 4980B A failure to meet portability, access, renewability, and market reform requirements under sections 9801, 9802, 9803, 9811, 9812, 9813, and 9815 A failure to make comparable Archer MSA contributions under section 4980E A failure to make comparable health savings account (HSA) contributions under section 4980G 10

11. The comparable contribution issue only arises if HSA contributions are not made on a pre-tax basis through a Code section 125 Plan where coverage and discrimination rules apply Otherwise employer contributions to HSAs are governed by the comparability rules under Code section 4980G o The comparability rules require that if an employer chooses to make HSA contributions on behalf of an employee, the employer must make comparable contributions to HSAs of all comparable participating employees o “Comparable contributions” for HSA purposes are those which are the same monetary amount or which are the same percentage of the annual deductible limit under the HDHP for comparable participating employees 11

12. “Comparable participating employees” are defined in the Code as all employees who are eligible individuals covered under the HDHP of the employer and having the same category of coverage The Code sets out only two categories of coverage for minimum deductible amounts, etc.: self-only HDHP coverage and family HDHP coverage However, if an employer provides different categories of family coverage based upon number of individuals covered by the HDHP, the comparability rules may be applied separately to each family category. The HDHP family categories for purposes of the comparability analysis are self plus one, self plus two, and self plus three or more 12

13. Failure to make contributions according to the comparability requirements set forth under the Code will subject the employer to an excise tax equal to 35% of the aggregate amount contributed by the employer during the plan year If the failure to have comparable contributions in the HDHP is due to reasonable cause rather than willful neglect, the IRS may waive all or part of the tax to the extent it would be considered excessive An employer may correct comparability failures in a HDHP by making an equalizing contribution to the HDHP by April 15 th of the calendar year following the year in which the comparability issue arises 13

14. February 23 rd of this year, the IRS published Notice 2015-16, regarding Code § 49801I—the so-called “Cadillac Plan excise tax”--provisions of the Code Commencing with the plan year beginning after December 31, 2017, there will be imposed an excise tax of 40% upon the cost of any “excess benefit” of any applicable coverage of an employee for the month over the applicable dollar limit for that month Code § 4980(d)(1)(A) defines “applicable coverage” as employer-provided group health plan coverage that is excluded from the employee’s gross income under Code § 106, or would be excludable if it were employer-provided coverage The language following the “or” in the statutory provision is intended to include within the definition of “applicable coverage” those types of health plans that an employee may purchase with pre-tax dollars or make a contribution to with pretax dollars, such as a Health Savings Account (“HSA”) 14

15. The cost of applicable coverage is determined separately based upon whether the coverage is “self-only” or “other than self-only coverage”-meaning that the employee and one or more others (spouse or dependents) are included in the coverage It is irrelevant whether the employee or the employer pays for the coverage Applicable dollar limits for the month commence, in 2018 as 1/12 of $10,200 for self- only coverage; and 1/12 of $27,500 per employee for other than self-only coverage, adjusted for cost-of living variances, age and gender and qualified retiree coverage, where applicable The Cadillac Plan excise tax may, depending upon the circumstances, be paid by the plan administrator, insurer, or employer It is always the employer, however, that must perform the calculations necessary to determine whether excise tax is owed for any particular employee’s benefits For this reason, the contents of the Notice are likely most important to employers 15

16. o Group health plan coverage for current and retired employees o Self-employed individual’s coverage o Health FSAs are applicable coverage o Archer MSAs are included, except for after-tax contributions o HSAs are included, except for employee after-tax contributions o Governmental plans are included, except for coverage provided to the military and their spouses and dependents o On-site medical clinic coverage is included, except for certain de minimis care, such as first aid, immunizations, allergy treatment injections and treatment of workplace injuries o Retiree coverage and coverage provided by multiemployer plans and o Certain specified illness or indemnity coverage, but only if it is deductible under Code § 162(l) 16

17. o Accident or disability insurance o Supplemental health benefit coverage under a liability insurance policy (such as automobile insurance) o Workers’ compensation insurance o Long-term care insurance o Credit-only insurance and o Other insurance where benefits for medical care are secondary or “incidental” to other insurance On the table are: Employee Assistance Programs (potentially excluded) Health Reimbursement Accounts (“HRAs”) (potentially included) 17

18. In general, the cost of applicable coverage is determined under an analysis similar to the determination of the COBRA applicable premium which, for self-insured plans contains o The actuarial basis method (cost is actuarially determined based upon the estimated cost of providing coverage to similarly situated individuals) and o The past cost method (cost is based upon the cost of the premium for the 12-month period ending 6 months before the commencement of the “determination period” as defined by the Secretary of the Treasury) 18

19. The cost of self-only coverage is determined separately from the cost of self + others coverage. The cost of multiemployer plan coverage is treated as self + others coverage, even if employees have the option to cover themselves and not their spouses and dependents The cost of applicable coverage includes the aggregate cost of all applicable coverage arrangements for which the employee elects to participate. The aggregate cost does not include coverage that is available to an employee, but in which the employee chooses not to enroll The cost for coverage for retiree coverage may be determined without regard to whether the retiree has attained the age of 65 19

20. The cost of a health FSA includes both the employee’s salary reduction contribution and any employer flex contributions The cost of HSAs and Archer MSAs include employer contributions and employee pre-tax contribution and With regard to HSAs, the Service is considering providing guidance that the cost of coverage of HSAs would be made based upon newly available amounts contributed by the employer each year Alternatively, the Service is considering allowing an employer to add the cost of all claims to the HAS to the administrative expenses of the HSA and dividing it by the number of employees who are making self-only coverage or non-self-only coverage elections 20

21. Certain employees may participate in self-only coverage for some plans of the employer—but family coverage in other plans The IRS is considering how to handle these situations, i.e., whether taking a composite percentage of premium costs would fairly represent the applicable cost of coverage in such circumstances Employer pays a penalty equal to the amount of excess benefit not disclosed, plus a tax underpayment penalty and interest if the excess benefit is improperly calculated This penalty is subject to a defense of reasonable cause and no “willfulness” 21

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23. This program was approved for 1.5 (General) recertification credit hours toward PHR, SPHR and GPHR recertification through the HR Certification Institute. Please be sure to note the program ID number on your recertification application form. For more information about certification or recertification, please visit the HR Certification Institute website at www.hrci.org.

24. To obtain a recording of this presentation, or to register for future presentations, contact your local UBA Partner Firm. Thank you for your participation in the UBA Employer Webinar Series If your question was not answered during the webinar or if you have a follow-up question, you can email the presenters today or tomorrow at: UBAwebinars@jacksonlewis.com www.UBAbenefits.com www.jacksonlewis.com