The final shared responsibility regulations under the Affordable Care Act, issued earlier this month, in large part maintain the rules set forth in the proposed regulations. However, there are several ways in which the final regulations modify or clarify these rules. Below is a top ten list (which we’re sure David Letterman would use if he were a benefits lawyer) of things to know about the final regulations.
The rules govern the requirement that employers with at least 50 full-time employees could owe a “shared responsibility” excise tax if they fail to offer group health coverage. One penalty (known as the “A” penalty) applies if an employer fails to offer group health coverage to 95% of its employees on every day of a month and at least one employee purchases coverage through an exchange with a federal subsidy; the “A” penalty each month is an excise tax of 1/12 of $2,000 for each full-time employee in excess of 30. Even if the employer meets the 95% test, a separate penalty (known as the “B” penalty) applies if the employer fails to offer affordable health coverage to an employee, and the employee purchases coverage through an exchange with a federal subsidy; the “B” penalty each month is an excise tax of 1/12 of $3,000 per each such employee who actually purchases coverage through an exchange with a federal subsidy. A “full-time employee” is a common-law employee who works an average of at least 30 hours per week. (You will find a more detailed description of the shared responsibility rules here and here.)
Below are our top 10 highlights of the final regulations: Continue Reading
If an employee assistance program (“EAP”) provides counseling for substance abuse, stress, depression, and similar health problems, the Labor Department and IRS regard it as a group health plan. Unless the EAP qualifies for an exception, it will have difficulty complying with the group health plan coverage requirements and other mandates.
Recent guidance from the federal regulatory agencies gives many EAPs a “free pass” for 2014, and creates new compliance options for 2015 and beyond. In order to keep their EAPs in compliance after 2014, employers might need to make design changes or satisfy other new requirements. EAP sponsors should take this opportunity to review their compliance options and develop a compliance strategy. Continue Reading
As many of you have no doubt heard, President Obama introduced a new retirement savings vehicle, known as a myRA, in his State of the Union address. At first blush, the program appears aimed exclusively at employees with no company-sponsored retirement plan and therefore of little interest to employers with sophisticated retirement programs already in place. However, deciding not to explore myRAs based on that first impression could be a mistake.
Treasury’s just released myRA fact sheet flatly states that employees participating in an employer-sponsored retirement plan are still eligible to make myRA contributions, as long as their annual incomes are less than $129,000 for individuals and $191,000 for couples. It appears that all employers—even those that already sponsor a retirement plan—will be eligible to participate in the myRA program and to sign up their employees for automatic payroll deduction contributions. In addition, because myRAs are structured as Roth IRAs, employers might be able to offer myRA contributions as an after-tax elective contribution option under their 401(k) and 403(b) plans, although Treasury has yet to confirm that and data links between Treasury and plan recordkeepers might be difficult and expensive to establish.
Whether employers participate in the myRA program inside or outside their 401(k) and 403(b) plans, the hidden gem in the program is the Treasury security employees will be eligible to buy. It is a nonmarketable Treasury security that until now has been available only to federal workers through the federal Thrift Savings Plan G Fund. The security pays interest at a variable rate equal to the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. This means it carries no principal risk, offers a blended mid- and long-term government bond yield, and would be a safer and possibly higher yielding alternative to a money market, stable value, or bond fund, all while being backed by the full faith and credit of the United States government.
Because of their unique characteristics, myRA Treasury securities could form a valuable part of the fixed-income component of employees’ retirement savings portfolios. Although myRA account balances are capped at $15,000, even that amount would enhance the fixed-income allocation in most employees’ retirement portfolios, given the low average account balance in the typical 401(k) and 403(b) plan.
So, what’s not to like about this new retirement savings alternative? Our prediction is that, once employees come to understand them, demand might maybe, just possibly, become brisk.
Starting in 2014, most individuals must maintain minimum essential health coverage or pay a penalty. (Please see our post here for a description of the health coverage mandates that apply to individuals and their families.) The Internal Revenue Service recently issued a proposed regulation clarifying the minimum essential coverage rules and other aspects of the individual mandate. Several points addressed in the proposed regulation will be of interest to employers that offer group health coverage to their employees.
Excepted Benefits Are Not Minimum Essential Coverage
Employers might wish to structure programs providing limited health benefits—such as dental and vision coverage or employee assistance—as “excepted benefits” so that these programs will avoid the group health plan requirements. Final regulations issued last year explained that minimum essential coverage does not include “health insurance coverage” consisting only of excepted benefits. The proposed regulation clarifies that no coverage (whether insured or self-insured) consisting solely of excepted benefits will qualify as minimum essential coverage.
This clarification confirms that coverage consisting solely of excepted benefits will not satisfy the employer’s obligation to offer minimum essential coverage to at least 95% of its full-time employees or the individual’s obligation to maintain minimum essential coverage. Employers must offer, and individuals must maintain, other group health coverage in order to satisfy these shared-responsibility mandates.
On the positive side, however, a lower-income employee who is covered by a plan that offers only excepted benefits will not be prevented from receiving premium tax credits. The tax credits help lower-income individuals purchase individual health coverage on an exchange. An employee who has minimum essential coverage from an employer health plan is not eligible for premium tax credits; but employer coverage consisting solely of excepted benefits will not affect the employee’s eligibility. Continue Reading
Employers should be aware that the Department of Human Services (“HHS”) is stepping up its enforcement of requirements for covered entities, such as group health plans, to adopt and implement policies and procedures for protecting and securing protected health information in accordance with the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). As our colleagues at InsidePrivacy recently described in a blog post, HHS Announces First HIPAA Settlement Based on Lack of Breach Notification Policies and Procedures, HHS recently reached a $150,000 settlement with Adult & Pediatric Dermatology, P.C. for the company’s failure to have written policies and procedures regarding breach notification, and to train workforce members on those policies and procedures. HHS pursued the company after a thumb drive that held health information was stolen from an employee’s car.
Employers were required to amend, by the end of last September, HIPAA policies and procedures for their group health plans to comply with the breach notification requirements in the Health Information Technology for Economic and Clinical Health (“HITECH”) Act.
On Monday, the Supreme Court unanimously ruled that a reasonable deadline for filing a lawsuit for benefits was enforceable. (Heimeshoff v. Hartford Life & Accident Insurance Co.) The decision is important because it confirms that the clock may start before a claim is filed under the plan’s mandatory administrative process. Plan sponsors who have not already done so should review the limitations periods under their plans and consider revising or stating more clearly when the limitations clock starts. Continue Reading
The IRS has resolved some of the uncertainty surrounding in-plan Roth rollovers in Notice 2013-74. Even though it is late in 2013, employers can still allow Roth contributions and in-plan Roth rollovers in 2013 without adopting plan amendments until the end of 2014.
1. What Is an In-Plan Roth Rollover?
Roth contributions have become an increasingly common feature in 401(k) plans. By one estimate, approximately half of the plans sponsored by large employers permitted Roth 401(k) contributions as of the beginning of 2013, and many more were considering adding the feature in 2013.
However, few plans permit participants to take existing 401(k) plan balances and convert them into Roth amounts by paying taxes on the amount converted — so-called “in-plan Roth rollovers.” Although plans have been permitted to allow in-plan Roth rollovers since the 2010 plan year, the limited nature of these rollovers (only amounts that were already eligible to be distributed from the plan could be rolled into a Roth) made them less attractive to plan sponsors and participants.
This limitation changed as of January 1, 2013, and plans are now permitted to allow in-plan Roth rollovers of additional amounts. However, the uncertainty regarding what could be rolled over and the rules for administering these rollovers kept many plan sponsors from incorporating this feature. The IRS has now resolved some of this uncertainty. Continue Reading
The Affordable Care Act created two new taxes for individuals whose income exceeds $200,000 ($250,000 for married couples filing joint returns). Employees must pay an additional 0.9% Medicare tax on wages in excess of these dollar thresholds. Individuals whose adjusted gross income exceeds the dollar thresholds also must pay a 3.8% tax on their net investment income.
Both taxes became effective in 2013, but high-income employees will pay the taxes for the first time next year, when they file their 2013 tax returns. Employers are required to withhold the 0.9% additional Medicare tax, and are liable for any amount they fail to withhold.
The IRS recently published a final regulation and an updated set of FAQs interpreting the additional Medicare tax. The IRS also published a final regulation, a new proposed regulation, and updated FAQs interpreting the tax on net investment income. Continue Reading
The Obama administration recently issued final regulations implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addition Equity Act of 2008 (the “MHPAEA”). The regulations implement the MHPAEA’s prohibition against imposing limits on mental health and substance use disorder benefits that are more restrictive than the limits on medical and surgical benefits. The final regulations largely preserve interim final regulations that have been in effect since July 1, 2010, with some clarifications that were announced previously in less formal guidance.
The final regulations, not surprisingly, require parity between medical/surgical benefits, on the one hand, and mental health/substance use disorder benefits, on the other, when both are provided under an employer’s major medical plan. However, in determining whether the parity is achieved, employers will need to consider separate arrangements, such as employee assistance plans and wellness programs. The failure to consider plans other than the major medical plan could result in noncompliance with the mental health parity rules.
The penalty for failing to comply with the new requirements is an excise tax of $100 per day per affected participant. In frequently asked questions that were issued with the final regulations, the Departments indicated that ensuring compliance through audits and other mechanisms is a high priority. Continue Reading
SPX Corporation recently announced it would transfer pension liabilities for 16,000 retirees to Massachusetts Mutual. The amount of these liabilities is reported to be $625 million. In addition, SPX will offer 7,500 former employees the option of taking a lump sum distribution from the SPX pension plan. SPX expects that the two actions together will reduce its pension liabilities by $800 million. SPX stated that a $250 million contribution to its plan earlier this year enabled the company to take these steps.
The SPX pension transfer follows two larger transfers last year: Verizon transferred $7.5 billion of pension liabilities to Prudential, and General Motors, in connection with a plan termination, transferred liabilities to Prudential and offered lump sums to retirees to reduce its pension liabilities by approximately $26 billion.
Favorable stock market returns and recent increases in interest rates may make transfers of liabilities to insurance companies more attractive. As funding levels improve, plans have greater ability to purchase annuity contracts. In addition, plan sponsors may take comfort in certain legal developments. For example, although Verizon’s pension transfer was challenged in court, Verizon has obtained favorable rulings recognizing a plan sponsor’s broad authority to transfer pension benefits from an ERISA-covered plan to an insurance company. In addition, the ERISA Advisory Council held hearings earlier this year examining pension settlements. Despite some calls for a moratorium on pension settlements, the Council’s primary recommendation regarding pension transfers focused only on the standard for selecting an insurance company. The SPX transaction (like the Verizon and GM transactions before it) is therefore likely to continue to be replicated.