SCA: What Is It and How Do You Comply?

Government service contractors everywhere know the looming letters, S-C-A. This small acronym packs a big punch and can have a huge impact on government contractors and their projects. At The Boon Group®, we’re here to support our clients, not just in providing excellent, competitive benefits packages but in the nuts and bolts of this rapidly changing industry. Read on for your crash course in SCA standards and compliance, and how Boon is here to help you!

The McNamara – O’Hara Service Contract Act of 1965, as amended, also known as the “SCA,” is a US labor law and implementing regulations that dictates the wage, hour, and benefit standards that service contractors and subcontractors must adhere to when performing services on contracts valued in excess of $2500. This is the basis for compliance that binds the vast majority of government contractors. Generally, service contractors have minimum requirements that must be met for their employees’ wages and benefits. The hourly requirement for benefits is called a fringe rate and, because benefits are required to be tracked on an hourly basis, fringe rates can be a source of anxiety for contractors who are trying to fit more traditional monthly benefit plans into the hourly requirements associated with government contracts.

(Boon Tip: Fringe Rates are set, on a national scale, and change each summer. The current rate for 2017/2018 is either $4.41 or $4.13 depending upon applicability of EO 13706. Keep up with our blog for the latest industry updates.)

So what are the rules and requirements laid out n the SCA? The terms reside in Title 41 § 6702 of the U.S. Code and in the Code of Federal Regulations (29 CFR § 4.01, et seq.) but we’re going to break it down for you here!

At the most basic level, the SCA applies to any federal government or District of Columbia contract that involves a monetary value exceeding $2500 and its purpose is providing services in the US through the performance and use of service employees. Construction projects do not apply and adhere to chapter 65 of Title 41, but that’s another blog post! The SCA requires that service employees performing within an eligible government contract must be paid monetary wages and must be provided with fringe benefits in specified amounts. The following is a breakdown of requirements for contractors, with respect to how they satisfy the SCA’s fringe benefit obligation:

  • That fringe benefits be furnished separately from and in addition to specific wages;
  • The requirement may be discharged by providing equivalent benefits or direct cash payment in lieu of benefits;
  • Tracking and maintaining proof of fringe benefit compliance;
  • Benefits must be bona fide;
  • And payments must be segregated as benefits, not wages.

If a contractor is found to be in violation, the SCA provides the authority to withhold contract funds, hold the contractor liable for any associated costs to the government, terminate the contract, and (worst of all) debar that contractor from future government contracts for three years!

At The Boon Group, we are here to help you navigate your way to the health and welfare benefit plan that best suits your needs and the needs of your employees. Government contractors choose Boon for three reasons: 1) Cost Savings, 2) Competitiveness, and 3) Compliance. We offer competitive rates and comprehensive care, with affordability and flexibility in mind. Boon has dedicated account representatives and counselors on call to help you choose the plan that is right for you. A little goes a long way and Boon recognizes that lowering costs on a contract today means bigger savings tomorrow.

Not only is The Boon Group competitive in our industry, but we want to help you be competitive in yours by offering you benefit plans that facilitate the savings that lead to lower contractor bids and more opportunity. At Boon, we understand that benefits are more than just solutions; when it comes to employee care, they are a boon to contractors, themselves.

Which brings us full circle to compliance. Boon’s in-house compliance department is there to provide support for any compliance issues that may arise, handling each situation with the utmost discretion and efficiency. Our team is here, adjusting to each new executive order and change in legislation and offering full support in the constantly evolving field of compliance and government contract standards.

Curious about EO 13706? Stay tuned.

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The DOL Rule is Mostly Dead, The SEC Proposal is Out There, and The Future is Murky

A death. A failed rescue attempt. An eleventh hour development on the horizon. Who says the world of healthcare is boring!?

The attempts of the AARP and three state attorneys general were unsuccessful in reviving the dying Department of Labor (DOL) fiduciary rule. In an attempt to save the rule, on April 26, a coalition of attorneys general from California, New York, and Oregon filed to intervene, in a lawsuit challenging the DOL regulation and requested an en banc rehearing of the March 16 decision that vacated the fiduciary rule. On Thursday, May 3, the court denied both of these motions unceremoniously.

It is possible the court may decide to re-hear the case on its own, but that is unlikely. However, the rule is not officially dead until the First Circuit issues its mandate vacating the rule. The Court was expected to issue its mandate on May 7, 2018, but it did not.

With the DOL rule essentially out of the picture, all eyes turn to the Securities and Exchange Commission (SEC) proposal. The SEC now has responsibility for setting fiduciary and “best interest” standards. Their latest proposal sets that standard for “best interest” and calls on brokers to establish policies to identify and avoid conflicts. The SEC proposal also maintains a FINRA arbitration process. This standard could potentially have far-reaching influence on how the NAIC regulates the sale of securities, if adopted.

The Labor Department and Internal Revenue Service clarify that brokers can continue to earn income through commissions when offering mutual funds and other savings products. While the Fifth Circuit Court of Appeals’ decision eliminated those new fiduciary requirements that went into effect this year, it does away with the “Best Interest Contract Exemption.” The BIC provides a means for advisors to offer advice as an ERISA fiduciary and still receive commissions.

The Department of Labor has until June 13, 2018 to appeal the Fifth Circuit’s decision to the Supreme Court. However, given the fact that they passively allowed the deadline to appeal the decision to pass, it’s unlikely they will move on this issue. Meanwhile, the SEC proposal is open for public comment and the Department of Labor has suggested that financial institutions continue to rely on the temporary enforcement policy.

This is a developing issue. Follow the Boon Blog for the most current updates as the situation unfolds.

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2019 HSA Limits Announced by the IRS

This update is hot off the presses! On May 10, the IRS announced that the annual limit on Health Savings Account contributions will increase by $50 for individuals and $100 for families next year.

In 2019, the annual contribution limit for individuals has been set at $3500 for self-only coverage, versus the 2018 rate of $3450. For family coverage, that limit ha gone from $6900 to $7000.

An HSA must be combined with a high deductible health plan. The IRS also announced the 2019 High Deductible Health Plan minimum deductible amounts. The minimum deductible for a qualifying high-deductible health plan has not changed for 2019. For 2019, the minimum annual deductible for a HDHP (individual) is $1350, unchanged from last year. For families, the minimum annual deductible rate remains consistent at $2700.

Under the Affordable Care Act, a group health plan cannot require an individual to spend more than a specified annual maximum amount on covered services. The IRS announced that for 2019, the maximum annual out-of-pocket on individual plans is $6750, an increase of $100 from 2018. For 2019, the maximum annual out-of-pocket amount for family plans is $13,500, an increase of $200 from 2018.

The Boon Blog is your resource for the latest in industry news. Follow the Boon Blog and catch us on Facebook, Twitter, and LinkedIn for all things Boon!

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Fiduciary Responsibility, Your Third-Party Services Provider, and You

Fiduciary responsibility. Liability under ERISA. Compliance.

Seems a little daunting when it’s laid out like that, doesn’t it? As a government contractor it’s important to understand the risks and benefits associated with choosing a third-party provider to administer your benefits plans. Read on to learn more:

Plan fiduciaries are the individuals or entities that manage an employee benefit plan and its assets. Per ERISA, a plan must have at least one fiduciary named in the plan, in writing. Most often, the employer is the Plan Administrator, or named fiduciary. Additionally, Trustees, investment advisers, and other entities or individuals who exercise discretion over plan assets may also be plan fiduciaries; attorneys and accountants that are acting solely within their professional capacity, or others who are providing ministerial services only, are not plan fiduciaries.

It is imperative to understand that even if an employer uses a third-party service provider, that employer, as the Plan Administrator named fiduciary, has fiduciary responsibilities. In fact, the named fiduciary has the most extensive responsibility, which includes all phases of plan management. Failure to properly exercise that fiduciary responsibility can make the employer culpable for any negligence or wrong-doing on the part of the third-party service provider the employer chose to provide the services.

ERISA defines the responsibilities of the plan fiduciary as follows:

  • The Duty of Loyalty: The Duty of Loyalty requires the fiduciary to act solely in the interest of the plan participants.
  • The Duty of Care: This duty requires a fiduciary to act with the care, diligence, and skill under the circumstances that a prudent person, acting in a like capacity and with the same expertise, would use in a similar enterprise.
  • The Duty to Provide Investment Diversification: This duty requires the diversification of plan investments to minimize the risk of large losses unless it is not prudent to do so, under the circumstances.
  • The Duty to Adhere to Plan Documents: This duty requires that the fiduciary must act in accordance with governing plan documents and instruments that are consistent with ERISA.

Fiduciaries can also be held liable for the acts, errors, and omissions of outside entities that provide services to the benefit plan. This can include organizations that service pension and benefit plans, consulting firms, law firms, accounting firms, investment advisers, and trust departments.

When choosing an employee benefits company, you’re choosing more than just an entity to handle your administrative and employee benefit needs. You’re choosing to take part in a working relationship that requires trust. For 35+ years, The Boon Group has succeeded with a model of creating strong relationships and providing meaningful benefits. We believe healthcare should be flexible, affordable, and, most of all, transparent and compliant.

For the latest on industry news, follow the Boon Group Blog.

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SEC Proposes its Own Fiduciary Rule

The DOL’s fiduciary rule has been a point of contention in the industry. Many financial groups claimed that the rule was overly burdensome and there was a fear of the rule driving up the cost of providing financial advice regarding retirement. The 2-1 decision from the U.S. Fifth Circuit Court of Appeals voiding the rule was a big win and it looks like there may be another one on the horizon!

That potential victory comes in the form of a fiduciary rule proposed by the Securities and Exchange Commission (SEC). Issued on Thursday, this rule would not pile on restrictions for brokers and advisors. The rule was approved by the SEC in a 4-1 vote and leans greatly in the favor of the industry, which is what critics of the rule are hanging their hat on.    The SEC proposed rule continues the status quo. Of course, this is a battle won in a long war and we will have to wait and see how the new rule stands up against Congress.

But, for now, let’s talk about what’s in the proposed SEC fiduciary rule and what it could mean for brokers and advisors!

The proposed rule puts forth different standards for brokers and advisors, in acknowledgment of the differences between how the two maintain relationships and dispense advice. For brokers, the SEC rule requires the “best interest” standard that we all know well by this point; no broker can put their own interests or the interests of the firm they represent over the interests of their client. The SEC proposal also provides some flexibility in terms of conflicts for brokers. The rule does not prohibit a broker-dealer from having conflicts, so long as the broker-dealer discloses those conflicts when making a recommendation. These disclosures would include those related to compensation and in-house products.

Advisors must abide by a more-stringent fiduciary standard. Critics of the rule claim that the proposal blurs the distinction between standards of care between brokers and investment advisors. The rule also provides no clarification on the difference between a sales and an advisory relationship. This has cast some doubt as to whether the rule will ever be successfully implemented.

Another point that the proposed SEC fiduciary rule addresses is the occasionally muddy waters of titles. Per the SEC rule, brokers and broker-dealer firms cannot call themselves “advisors/advisers.” However, hybrid RIA/brokers are exempt from this and open to some flexibility.

Both advisors and brokers will be required, under the new rule, to provide clients with a relationship-summary disclosure. This would detail the nature of their relationship, the services and costs associated, any existing conflicts of interest, an expected standard of conduct, and any legal or disciplinary events or actions.

It remains to be seen what the future of the SEC proposed fiduciary role will be.  The proposal is currently in a public comment period that will last 90 days from the date the proposal was issued (Apr. 18). Additionally, the AARP has thrown their hat into the ring with an attempt to revive the DOL fiduciary rule. The AARP, backed by attorney generals from various states, have appealed to the Fifth Circuit and are requesting permission for an en banc review of the ruling against the DOL rule.

The Boon Group is dedicated to providing effective investment management services. Asset allocation? You bet. Performance monitoring and portfolio analysis? We got this! At Boon, we are set up to be a Fiduciary and always act in the best interest of our clients; the one constant in these uncertain times. Boon isn’t shaken by these changes and are steady in our commitment to you!

This is a developing issue that we will be watching closely. Follow the Boon Blog for the latest in industry updates and all things Boon! You can also catch us on Facebook, Twitter, and LinkedIn!

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Your Guide to Letters from the IRS

As a government contractor, one of your biggest concerns is compliance. As of now, Affordable Care Act penalties are being assessed by the IRS and the hammer is dropping on many organizations who failed to comply with the employer mandate requirements of the Affordable Care Act. This hammer is arriving in the form of Letter 226J and can have serious implications for you and your organization. But what is it? What are your options, should you receive one of these letters? Read on to learn more:

Letter 226J

This is the first letter that the Internal Revenue Service sends out to Applicable Large Employers (ALEs), with the intent of notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP). The IRS uses information from 1094-C and 1095-C forms filed by the ALE and the individual income tax returns of employees of that ALE to make a determination on whether an ALE owes an ESRP and, potentially, the amount that is due. The ACA Times reported letters requiring payments ranging from the tens of thousands of dollars to nearly six million! They’re not calling it the “Million Dollar Letter” for nothing!

If you receive Letter 226J, it is important that you review the data that was submitted as part of your ACA filing with the IRS. Hopefully, this will help you identify any errors that there may be in the IRS letter and you will be able to appeal. Next, you must provide the information requested by the IRS by the response date included in the letter, which is typically 30 days from the date the letter was sent. All contact information will be included in the letter. Respond in writing, either with your compliance to the request or with your disagreement and evidence to back up your request for review.

What if you don’t respond? The IRS will issue a Notice and Demand For Payment.

Letter 227

IRS Letter 227 is sent next, after your organization has received a Letter 226J. Letter 227 is actually five different letters and each different version is used to acknowledge your response to Letter 226J and describes further actions that your organization must take. So, what are these different versions and what do they do?  Two of the five letters are reserved for instances of partial agreement or the need of clarification on a response. The other three are as follows:

1) Letter 227K

This is your best case scenario letter! It confirms that your case has been resolved. The purpose of Letter 227K is to acknowledge that the information you enclosed in your response to the Letter 226J was satisfactory and your organization does not owe an ESRP.

2) Letter 227L

Letter 227L is also a positive. While not a total closing of the case, a Letter 227L means that the IRS has heard your case for a reduced ESRP and agrees with you and the information provided in your response to Letter 226J. An ESRP payment must still be paid but for an amount much smaller than the one originally proposed.

3) Letter 227M

Unfortunately, not all news is good news. When you receive a Letter 227M it means that the IRS disagrees with your Letter 226J response and reiterates the original penalty, no dismissal and no reduction of the ESRP. If your organization still disagrees with the IRS you do retain the right to appeal and prepare a protest. It is recommended to request a pre-assessment conference with the IRS Office of Appeals. This should be requested in writing and sent in by the response date indicated in your Letter 227 (this is typically 30 days from the date of the letter).

The Boon Group has the expertise and resources to help clients address a variety of compliance issues. Our Legal and Compliance services have experience in Affordable Care Act compliance, state mandate requirements, tracking federal regulation and ensuring compliance with new regulations, as they arise.

Have questions about your compliance? Visit us at The Boon Group. Want to stay up to date on the latest industry news? Follow the Boon Group Blog and catch up with Boon on our Facebook, Twitter, and LinkedIn!

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Three Potential Compliance Pitfalls for Government Contractors in 2018

Compliance goes with government contracting like peanut butter goes with jelly. It’s just part of the deal. But compliance, in and of itself, is a huge undertaking. Government contractors are navigating rules and regulations, statutes and case law, new legislation and initiatives that ebb and flow with each new administration, and the individual requirements and guidance issued by the contracting agency.

In this ever-changing landscape, there are new pitfalls for government contractors opening up each and every day. At The Boon Group® , our team is here to be your guide! Read on for three potential compliance stumbling blocks that all government contractors should be aware of in 2018.

1) New and Changing Sick Leave Requirements

Sick leave requirements are a part of the vast majority of government contracts. In 2015, President Obama signed an executive order requiring that employees be provided at least seven days of paid sick leave, including paid leave for family care, annually. The Final Rule on Executive Order 13706 was published later, in 2016.

As it stands, under the current administration, President Trump has not moved to rescind this executive order but the future of EO 13706 remains uncertain. This is an area of interest for government contractors that we’re all watching closely, especially given the fact that these requirements must be included in addition to whatever mandates regarding sick leave are established in various locales and states. The issue of these sick leave requirements is gaining a lot of momentum across the country.

As a government contractor, your compliance rests on providing these types of benefits to your employees and being on top of all the latest developments. At Boon, we’re paying attention as well and making it a priority to provide you with the latest updates.

2) Unpredictable Administration, Uncertainty with Federal Budget

You don’t have to be an avid follower of politics to know that things are getting interesting up in Washington, D.C. With the Republicans holding a majority in the United States Legislature, under the Trump administration, one might assume certain changes are a given. Not so! This administration has shown time and time again that it does not neatly check off the expected boxes. Priorities shift and that makes it difficult to anticipate the next big move on Capitol Hill.

Putting policy preferences aside, the unpredictable nature of the current administration and its focus means that contractors are left suspended in the balance. The U.S. already saw a shutdown this year on January 20th, lasting only two days but reminding us that benefits and pay could be affected in the future. Government shutdowns mean the closure of nonessential government offices and show the fickle nature of the federal budget. It also brings government contracting projects to a screeching halt.

A brief but nail-biter of a funding gap occurred on Friday, February 9th 2018. While this technically constituted a shutdown, neither workers nor government services were disrupted as the issue arose and resolved overnight before the following workday.

No government, no billable hours. That’s a stressful game to play when it comes to one’s income. While, historically, federal employees are always paid back for any time that they were shut down during a period of no funding, contractors and their employees do not always enjoy the same safety net, making it especially important for government contractors to stay abreast of the trends in D.C. for the purpose of compliance adherence.

3) SCA Compliance

The Service Contract Act, better known as the SCA, is the “Big One” in the world of government service contractors. The SCA is the final word on standards for wages, hours, and benefits and its impact is huge. The SCA governs contractors and subcontractors performing services on contracts valued in excess of $2500. Compliance with the terms of the SCA is an absolute must for government service contractors and those found in violation may suffer serious repercussions.

Meeting the terms of the SCA is straightforward, but must be managed diligently and thoroughly. Government contractors are responsible for tracking the productive hours of their employees; making proper and timely payments in the form of wages and bona fide fringe benefits, and providing employees with notice of their benefits.

At The Boon Group, our vision is flexible and affordable healthcare in the federal contracting space. This is about providing quality care to our clients but also about being in your corner. Our in-house team of professionals work tirelessly to be experts in our field and to be on guard against compliance pitfalls, so that you don’t have to be. At Boon, our entire team is dedicated to staying ahead of these potential pitfalls and keeping you compliant.

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