The Departments of Labor, Treasury and HHS have issued proposed regulations that will implement the changes imposed by the Affordable Care Act (ACA) that affect wellness programs. These proposed regulations specify the requirements that wellness programs must meet to avoid violating HIPAA nondiscrimination rules.
The proposed regulations reflect the increase adopted in ACA of the maximum discount employers can offer in connection with their health-contingent wellness programs. The maximum discount on the cost of coverage increases from 20% to 30% generally; but if the wellness program is designed to reduce tobacco use, the maximum discount increases from 20% to 50%. This discount limitation only applies to wellness programs that condition the reward on achieving a standard based on a health factor. If the discount is available solely for participating in the wellness program (without regard to whether the employee meets any further requirements), then there is no limit on the amount of the discount an employer can offer.
The proposed regulations would affect wellness programs offered through the group and individual market, and would apply to plan years beginning on or after January 1, 2014.
The preamble to the propose regulations includes an analysis of the use of wellness programs, looking at the types of employers that use wellness programs, the most popular types of wellness programs, and the effect of wellness programs on employee health.
The IRS has released its long-awaited updates to the Employee Plans Compliance Resolution System (“EPCRS”) program (Revenue Procedure 2013-12). Most notably, 403(b) plans are now eligible to use the Voluntary Correction Program (VCP) to correct operational failures. The new guidance also provides for a modified application process (including two new forms required for submission) and clarifies some of the available correction methods.
Other notable provisions include allowing sponsors to adopt a corrective amendment and continue to rely on a pre-approved plan’s opinion or advisory letter, clarifying when a determination letter application is required under EPCRS, and allowing 403(b) plans to use EPCRS to correct a failure to adopt a written plan document.
The updated guidance does not provide correction methods for failures to implement automatic enrollment or failures to provide safe harbor notices, and the IRS has requested comments on these and other specific issues.
The new guidance is effective April 1, 2013, but plan sponsors may choose to apply the provisions of the updated revenue procedure beginning on or after December 31, 2012, meaning, among other things, that 403(b) plans may submit VCP applications before the April 1 effective date.
Click here for more information about EPCRS.
Starting in 2014, the Affordable Care Act (ACA) will prohibit a group health plan from imposing a waiting period longer than 90 days. In other words, the amount of time that must pass before an otherwise eligible employee or dependent can enroll for coverage under the plan cannot exceed 90 days. The 90-day waiting period limitation applies to grandfathered and non-grandfathered plans.
If a plan does not comply with the 90-day waiting period rules, the employer sponsoring the plan is subject to excise taxes (generally $100 per day per individual).
The Departments of Labor, HHS, and the Treasury have issued temporary guidance on their interpretation and enforcement of the 90-day waiting period limitation. The guidance includes the following clarifications:
For determining whether variable-hour employees work enough hours to be eligible to participate in the plan, the guidance provides a safe-harbor, whereby the plan can take as long as permitted under Section 4980H of the Code to determine whether the employee has worked sufficient hours to be eligible for coverage. The 4980H safe harbor allows a plan to take up to 12 months to determine whether the employee has sufficient hours to qualify as eligible (see IRS Notice 2012-58, discussed below). The coverage must begin no later than the first day of the month following the employee’s first 13 months employment.
Keep in mind that imposing waiting periods and eligibility periods can implicate shared responsibility obligations under Section 4980H of the Internal Revenue Code.
The temporary guidance will remain in effect through at least the end of 2014.
The IRS has issued a safe harbor that employers can use to determine which employees are treated as full-time employees for purposes of the shared responsibility rules under the Affordable Care Act (Section 4980H of the Internal Revenue Code). These rules provide that an employer with 50 or more full-time employees may be subject to tax penalties, i.e., shared responsibility, if the employer does not offer “affordable” coverage under its health plan. The penalty amount is based on the number of full-time employees employed by the employer. Thus, knowing who constitutes a “full-time employee” is an important determination.
The safe harbor is useful for employers when it cannot be determined, at the time an employee starts employment, whether that employee is reasonably expected to work an average of at least 30 hours per week (referred to in the notice as “variable hour employees”).
Under the safe harbor, an employer has up to 12 months to determine whether a new variable hour employee or seasonal employee is a full-time employee. The notice also allows employers to determine whether its coverage is “affordable” based on the employee’s Form W-2 Box 1 wages.
Notice 2012-58 is available here.
The Department of Labor has clarified how the status of a non-ERISA 403(b) plan may be affected by concurrently maintaining an ERISA-governed 401(a) plan (e.g., 401(k) plan, pension plan, money purchase plan). In short, the DOL has confirmed that a 403(b) plan that is exempt from Title I of ERISA (by virtue of satisfying the DOL safe harbor) does not lose its ERISA-exempt status merely because the employer also maintains a separate plan qualified under Code Section 401(a) and governed by ERISA. In addition, an employer can take employee participation in the 403(b) plan (including salary reduction contributions) into account in ensuring that employer contributions to the 401(a) plan meet tax qualification requirements.
However, a 403(b) plan does not satisfy the safe harbor and is subject to ERISA if the employer conditions its contributions to the 401(a) plan on the employee making salary reduction contributions to the 403(b) plan. Conditioning employer contributions to the 401(a) plan on employee contributions to the 403(b) plan would be inconsistent with the limited employer involvement required by the safe harbor, and would also conflict with the safe harbor requirement that employee participation in the 403(b) plan be “completely voluntary.”
The DOL guidance is available here: DOL Advisory Opinion 2012-02A.
Employers who sponsor pension plans, 401(k) plans and other defined contribution and defined benefit retirement plans should be aware of the requirements of the recent final service provider fee regulations issued by the Department of Labor under Section 408(b)(2) of ERISA. If a plan fiduciary fails to comply with its obligations under these rules, the DOL can assess civil penalties against the plan sponsor/fiduciaries, and IRS excise taxes may apply.
What do the regulations require?
The regulations require plan service providers to furnish the plan with:
(1) a description of the services they will provide to the plan, and
(2) a description of all direct and indirect compensation and fees to be received by the service provider in connection with the services provided to the plan.
Examples of service providers covered by the final regulations include investment advisors, recordkeepers, third-party administrators, auditors, and actuaries. These and any other service providers who receive direct or indirect compensation in excess of $1,000 must disclose their fees in accordance with the final regulations.
(Note: Direct compensation is compensation paid from the plan’s assets. Indirect compensation is compensation received from any source other than the covered plan, the plan sponsor, the covered service provider, or an affiliate.
When do the regulations take effect?
Plan sponsors should receive a copy of fee disclosures from all covered service providers on or before July 1, 2012. After that, plan sponsors should receive a copy of the fee disclosure before entering into, or renewing or extending, an agreement or contract with a service provider.
What are the employer’s obligations under the regulations?
If a plan does not receive the fee disclosure as required, the plan must request in writing that the service provider furnish the disclosure. If the service provider fails to provide the plan with a fee disclosure within 90 days of the request, the plan must then notify the Department of Labor within 30 days of the failure.
The plan must also determine whether it is prudent to continue the contract with a service provider that has failed to disclose its fees in accordance with DOL requirements.
If the plan fails to request the fee disclosure, fails to notify the DOL in the event the requests is unfulfilled, and does not determine whether it is prudent to continue the contract with the non-compliant service provider, then the arrangement with the service provider will violate ERISA’s prohibited transaction rules. The Department of Labor can assess a civil penalty against plan fiduciaries who violate ERISA’s prohibited transaction rules, and IRS excise taxes may apply.
The Departments of Treasury, HHS and Labor recently released final regulations on the “summary of benefits and coverage” (SBC) disclosure. The SBC must be provided by group health plans and health insurance issuers to all health plan applicants, enrollees, and policyholders. The SBC must describe the benefits and coverage under the applicable plan and include a glossary of terms used in health insurance coverage (such as “deductible,” “co-payment,” and “preferred provider”).
Effective Dates Coming Up: Plans must issue SBCs beginning with open enrollment periods that occur on or after September 23, 2012. Plans must also provide SBCs to individuals who enroll outside of open enrollment (for example, newly eligible or special enrollees), starting with the first plan year that begins on or after September 23, 2012 (that is, January 1, 2013 for calendar year plans). For many calendar year group health plans, this means that SBC disclosures will be required as part of open enrollment this year, if the open enrollment period begins on or after September 23, 2012.
Penalties For Non-Compliance: Group health plans that do not comply with the SBC requirements are subject to potentially significant penalties. These include a penalty of up to $100 per day for each affected individual (and up to $1,000 per day for each affected individual in the case of willful violations of the SBC requirements). In addition, IRS excise taxes may apply, which would require taxpayers to self-report the compliance failure and amount of excise taxes due (and which carries its own penalties if the taxpayer fails to properly report and pay for these occurrences).
Action Steps: Plan sponsors and administrators should be working now with their third-party administrators and carriers to coordinate the preparation, drafting, and distribution of the SBC. Plans will need sufficient time to review and revise the SBC disclosure, especially where multiple carriers and insurers are associated with the plan.
The final regulations, SBC templates, and other guidance may be found here.
The Departments of Treasury, HHS and Labor recently released guidance in the form of FAQs, regarding automatic enrollment, employer shared responsibility, and waiting periods under the Patient Protection and Affordable Care Act (“PPACA”). The guidance is available here.
Among other things, the guidance provides that employers are not required to comply with PPACA’s automatic enrollment provisions until final regulations are in place (which is not expected to occur before 2014). Under PPACA, an employer that has more than 200 full-time employees must automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any waiting period authorized by law).
The IRS has released Notice 2012-9, which updates and amends prior interim guidance on the W-2 reporting requirements for employer-sponsored group health plan costs. Under the Patient Protection and Affordable Care Act, employers will generally be required to report the aggregate cost of applicable employer-sponsored group health coverage on Forms W-2 beginning in 2012 (for Forms W-2 for the calendar year 2012 that employers must furnish to employees in 2013).
Among other things, the IRS Notice clarifies the guidance around the exception to the reporting requirement (for 2012 and until further notice) for employers that were required to file fewer than 250 Forms W-2 in the preceding calendar year. A copy of the notice may be found here.
Below is a list of some of the employee benefits legal compliance action items with year-end deadlines (December 31, 2011 for calendar-year plans), in addition to companies’ recurring employee benefit plan obligations:
• Required Minimum Distribution Waiver Amendment. Retirement plans are generally required to begin distributions when plan participants reach age 70½. In 2009, plans were allowed to suspend required minimum distributions for the year. If your retirement plan suspended the requirement, the plan must be amended to reflect this by the last day of the 2011 plan year.
• Section 436 Funding-Based Limits Amendment. Defined benefit plans must be amended by the last day of the 2011 plan year to meet the requirements of Section 436 (relating to funding-based limits on benefits and benefit accruals).
• In-Plan Roth Conversions. If your plan allows in-plan conversions from pre-tax accounts to Roth accounts, it must be amended to reflect the change by the last day of the plan year in which the change was adopted.
• Health Care Plans: Claims and Appeals Procedures. Certain requirements relating to health plan claims and procedures will take effect January 1, 2012, which may require plan amendments and updates to the summary plan description.
• Determination Letter Filing Deadline. Qualified plans that fall in IRS determination letter cycle A (generally, individually-designed plans sponsored by those employers with EIN numbers ending in 1 or 6) must file by January 31, 2012.