Monthly Archives: September 2012
Friday, September 28, 2012

Last week, the Senate Committee on Health, Education, Labor & Pensions (“HELP”) held a hearing on what Sen. Tom Harkin (D-IA), the HELP Committee’s Chairman, refers to as the “retirement crisis.”  Sen. Harkin states  that the “retirement income deficit” (which he defines as the difference between the assets people need for retirement and what they have available) is approximately $6.6 billion.  The hearing was largely in response to Harkin’s report in which he outlines, in broad strokes, his plan to enhance retirement security.  Sen. Harkin’s plan has two basic prongs: (1) strengthen Social Security and (2) create a new retirement fund option that will be government-run, but largely privately funded. 

Sen. Harkin’s Report

On the Social Security side, Sen. Harkin proposes to increase the benefits payable by modifying the formula for calculating benefits and improving the built-in cost of living adjustment for Social Security benefits.  He also proposes to remove the cap (currently, $110,100) on wages subject to the Social Security tax over a 10-year period.  The removal of the cap would come with an increase in benefits for those with wages over the cap, but the additional benefits would be less than the enhanced benefits he proposes for wages below the cap.

The more interesting side of his proposal is to build a system of “Universal, Secure, and Adaptable (‘USA’) Retirement Funds.”  USA Retirement Funds, in addition to having a subtle patriotic flair, would basically be individual accounts for each employee that would provide lifetime income benefits, like a pension.  Essentially, they would be government-sponsored IRAs that paid out in annuity form.   (This is similar to some proposals that states have put forward, as we discussed here previously.)

Contributions would come from employees, who would be automatically enrolled, and employers.  Employers maintaining a defined benefit pension plan, or a defined contribution plan with automatic enrollment and a match, would not be required to participate.  All other employers would have to automatically enroll their employees in the USA Retirement Funds.  The investment of the funds would be professionally managed and their assets pooled to spread the risk.

The funds would be overseen by a board of trustees with employer, employee, and retiree representatives.  While Sen. Harkin’s proposal is short on many specifics, one item he does specify is that the trustees would have the ability to “gradually adjust benefits to reflect market realities” in the event of a severe and long-term economic downturn.  (Contrast this with private plans, which can reduce future benefit accruals, but generally cannot reduce benefit payments.)  They could also increase benefits if the USA Retirement Funds had better than expected returns.

Sen. Harkin (D-IA)

Sen. Harkin acknowledged at the hearing that Congress is unlikely to act on his proposal this year (we think it has something to do with this “election” we keep hearing so much about), but he promised to aggressively pursue it next year.  If Harkin is successful in pushing this proposal (or some version of it) through Congress, it could have a greater impact on the current retirement system than he proposes.  For example, some pension plans and some profit-sharing contribution formulas determine benefits by effectively offsetting for Social Security benefits.  How will his proposal impact those formulas?  Will employers who do not have a match now consider adding one to avoid contributing to the USA Retirement Funds?  Alternatively, could employers simply decide to terminate their plans and just buy in to this new system?  Would such a system effectively be the last nail in the coffin of defined benefit pension plans?  These and other considerations could become increasingly important if Sen. Harkin’s proposal gains traction.

Thursday, September 27, 2012
We recently held a health care reform roundtable where our clients and friends were able to share ideas about their preparations for upcoming Patient Protection and Affordable Care Act  compliance. Below is an implementation timeline that we shared with those in attendance. We hope you find it useful as well.

Health Care Reform: Moving Forward From 2012 to 2018

Implementation Timeline

2012

January 1, 2012 Employers begin tracking information necessary to report the aggregate cost of each employee’s health coverage on Forms W-2 for 2012 and thereafter.
August 1, 2012 First rebates from insurers due under medical loss ratio requirement. Plan sponsors must allocate rebates consistent with DOL rules.
Plan years beginning on or after August 1, 2012 Non-grandfathered plans must begin providing FDA-approved contraceptives to women at no-cost.
First open enrollment period or first plan year beginning on or after September 23, 2012, whichever is earlier Provide a summary of benefits and coverage (SBC) to eligible employees and participants. Plans must provide 60-day advance notice of any material changes to the SBC.
Plan years beginning on or after September 23, 2012 (January 1, 2013 for calendar year plans) Any annual limit on essential health benefits cannot be less than $2,000,000.ª
Plan years ending on or after October 1, 2012 (December 31, 2012 for calendar year plans) Choose method for calculating the average number of covered lives for purposes of determining the plan sponsor’s required annual fee to fund the Patient-Centered Outcomes Research Institute.

2013

Cafeteria plan years beginning after December 31, 2012 The annual health FSA limit on salary reduction contributions cannot exceed $2,500 (subject to annual cost-of-living adjustments). Plans must be amended by December 31, 2014.
January 31, 2013 Issuance of employees’ Forms W-2 reporting the aggregate cost of health coverage (2012 as the first reporting year).
March 1, 2013 Employers must provide new hires and current employees with written notice about the health exchange and the consequences of purchasing coverage through an exchange in lieu of any employer-provided coverage.
July 31, 2013 Payment of the first annual Patient-Centered Outcomes Research Institute Fee is due. Report fee using IRS Form 720, Quarterly Federal Excise Tax Return.

2014

Beginning January 1, 2014 Pay or Play: Employers with an average of at least 50 full-time & full-time equivalent employees during the preceding year may be subject to a penalty tax for (i) failing to provide health care coverage to all full-time employees and their dependents; or (ii) offering minimum essential coverage that is either not affordable or under which the plan’s share of the total allowed cost of benefits is less than 60% of the actuarial value.Individual Mandate: Individuals are subject to a tax penalty for each month in which they do not possess minimum essential coverage.
Insurers and third-party administrators, on behalf of self-insured medical plans, must begin making contributions to support reinsurance payments through 2016. First payment due January 15, 2014.
Plan years beginning on or after January 1, 2014 Grandfathered plans must extend eligibility to dependent children without regard to whether they are eligible for other employer-provided coverage.
Waiting period in excess of 90 days is prohibited.
Pre-existing condition exclusions prohibited (even for grandfathered plans).
Annual limits on essential health benefits are prohibited.

ª Regulations have yet to be issued defining “essential health benefits”, but we know that they include items and services in the following general categories: (i) ambulatory patient services; (ii) emergency services; (iii) hospitalization; (iv) maternity and newborn care; (v) mental health and substance use disorder services, including behavioral health treatment; (vi) prescription drugs; (vii) rehabilitative and habilitative services and devices; (viii) laboratory services; (ix) preventive and wellness services and chronic disease management; and (x) pediatric services, including oral and vision care.

 2014

Plan years beginning on or after January 1, 2014 Annual out-of-pocket maximums for a non-grandfathered plan may not exceed the limits for high deductible health plans and deductibles may not be greater than $2,000 for individual coverage and $4,000 for family coverage.
Non-grandfathered insured plans must provide comprehensive health insurance coverage that:

  • covers essential health benefits;
  • limits cost sharing; and
  • covers at least 60% of the actuarial value of covered benefits.
Non-grandfathered plans are prohibited from:

  • denying any qualified individual of the right to participate in a clinical trial;
  • denying, limiting or imposing additional conditions on the coverage for routine patient costs for items and services furnished in connection with participation in the clinical trial; and
  • discriminating against any qualified individuals who participate in a clinical trial.
With respect to any participation or coverage, a non-grandfathered plan may not discriminate against any health care provider acting within the scope of his or her license or certification.
Non-grandfathered plans may offer financial incentives of up to 30% for participation in a wellness program.

AUTOMATIC ENROLLMENT: Employers that: (i) are subject to the Fair Labor Standards Act; (ii) have more than 200 full-time employees; and (iii) have at least one health benefit plan must automatically enroll full-time employees in one of the health benefit plans (subject to any waiting period) and provide “adequate notice” to employees (with an opportunity for employees to opt out of coverage).However, the DOL has indicated that employers are not required to comply with this requirement before final regulations are issued, which is not expected in time to implement by 2014.

ADDITIONAL REPORTING: Non-grandfathered group health plans are subject to the following additional reporting requirements:

  • § Annual report filed with HHS addressing whether plan or coverage benefits (and provider reimbursement structures) satisfy various criteria related to the cost and quality of health care, such as whether the plan or coverage: (i) improves health outcomes for treatment or services through certain activities; (ii) implements activities to prevent hospital re-admissions; (iii) improves patient safety and reduces medical errors through best clinical practice, evidence-based medicine, and health information technology; and (iv) implements wellness and health promotion activities. However, a due date by which the first report must be submitted to HHS has not yet been specified.
  • § Transparency in coverage reporting in which plans must disclose to HHS and the state insurance commissioner (and make available to the public) the following information: (i) claims payment policies and practices; (ii) periodic financial disclosures; (iii) data on enrollment and disenrollment; (iv) data on the number of claims denied; (v) data on rating practices; (vi) information on cost-sharing and payments regarding any out-of-network coverage; (vii) information on enrollee and participant rights under Title I of PPACA; and (viii) other information as determined by HHS. Plans subject to this reporting requirements must also provide certain cost-sharing information upon request from an individual. Although this requirement was effective beginning for plan years after September 23, 2010, it is unlikely to be enforced before state exchanges are effective in 2014.

ELECTRONIC TRANSACTION RULES: Health care reform expanded HIPAA’s electronic transaction rules. Beginning in 2013, electronic eligibility and claims status transactions must be conducted in accordance with the standards and operating rules adopted by HHS. In 2014, the standards and operating rules for electronic funds transfer (EFT) and remittance advice will apply. The standards and operating rules for health claims or equivalent encounter information, enrollment and disenrollment, health plan premium payments, referral certification and authorization and health claims attachments are scheduled to be effective January 1, 2016.

2015

Filing deadline TBA Filing of first annual information return by: (i) sponsors of self-insured plans; (ii) large employers; and (iii) employers offering minimum essential coverage reporting certain plan information, including whether minimum essential coverage is provided to full-time employees and their dependents. A written statement must be provided to each full-time employee whose name was required to be included in such report on or before January 31 of the year following the calendar year for which the information was reported.

2018

Taxable years beginning January 1, 2018 Employer must pay nondeductible 40% excise tax on the amount, if any, by which the monthly value/cost of health coverage provided to an individual exceeds $10,200 for an individual and $27,500 for a family, as such amounts are indexed for inflation.

www.BenefitsBryanCave.com

Friday, September 14, 2012

In Revenue Procedure 2012-35, the Internal Revenue Service limited the use of its letter forwarding program to “humane purposes,” such as emergency situations, and specifically indicated that it will not be available to locate missing participants who may be entitled to a retirement benefit.  The new limitation applies to letter forwarding requests postmarked on and after August 31, 2012.

One of the practical implications of that was discussed by IRS officials in a recent phone forum.  The correction of certain operational failures under the Voluntary Correction Program (“VCP”) may affect former participants by, for example, requiring corrective allocations or distributions.  In those cases, the VCP submission must indicate the method that will be used to locate and notify those individuals of the failure and the correction.  Many submissions designate the IRS letter forwarding program as one or more methods that will be used for that purpose.  As a result, an IRS agent may contact the plan administrator to revise the proposed correction method in a pending VCP submission, particularly if no alternative method of locating former participants has been proposed.  Alternative methods will have to be proposed in all new VCP submissions.

One IRS official indicated that several acceptable alternative methods are described in the Department of Labor’s Field Assistance Bulletin 2004-02, which discussed fiduciary obligations with respect to locating missing participants in defined contribution plan terminations.  The alternative methods described in FAB 2004-02 include the Social Security Administration letter forwarding service and the use of Internet search tools, commercial locator services, and credit reporting agencies.

One or more of those alternative methods will now have to be used to locate missing participants when terminating defined contribution plans as well.

 

Disclaimer/IRS Circular 230 Notice

Tuesday, September 11, 2012

Late on a Friday, just before escaping for Labor Day weekend, the IRS, Department of Labor, and Department of Health and Human Services provided two pieces of guidance on two of health care reform’s more important provisions: determining full-time status of employees for purposes of the employer “play or pay” penalty and the 90-day waiting period requirement.  The two pieces of guidance refer to one another, so it is important to understand them both.  In addition, while neither piece of guidance takes effect until 2014, sponsors of health plans should begin planning now to address these pieces of guidance.  We addressed the 90-day waiting period guidance last Friday and this post will address the “play or pay” guidance.

Overview

For those unfamiliar, beginning in 2014, the Patient Protection and Affordable Care Act provides that any employer with more than 50 full-time equivalent employees must offer coverage that is “affordable” and provides “minimum value” or pay a penalty.  Coverage is “affordable” if the premium cost to an employee is no more than 9.5% of the employee’s household income.  The IRS has stated previously, and reaffirmed in this notice, that employers may use the employee’s wages reported on Form W-2 instead of actual household income.  A plan provides minimum value if it covers at least 60% of the total allowed cost of benefits under the plan.

If an employer fails to offer any coverage, and one employee receives a premium tax credit or cost-sharing reduction for health insurance purchased through a health insurance exchange, that employer is subject to a penalty of $2,000 per year for each full-time employee in the employer’s workforce over the first 30.  An employer who offers coverage that is either unaffordable or fails to provide minimum value is subject to a penalty of $3,000 per year for each full-time employee who receives a premium tax credit or cost-sharing reduction from a health insurance exchange (or, if less, the penalty described in the preceding sentence).  (See our prior post here on the controversy over which exchanges will allow individuals to qualify for tax credits.)

Generally, any employee who works an average of at least 30 hours per week is full-time.  However, what about employees who work variable or seasonal schedules? IRS Notice 2012-58 tries to answer that question.

The Guidance

Overview and Considerations.  In broad terms, the Notice provides a safe harbor under which an employer establishes periods for measuring employee hours.  Then, if an employee is determined to average at least 30 hours per week during the measurement period, the employee must be treated as full-time for a specified period after the conclusion of the applicable measurement period (called the “Stability Period”).  This avoids employees being full-time one week and not full-time the next, for example, which would create significant administrative headaches.

The Notice does not address plan documentation.  However, plan sponsors wishing to take advantage of the measurement and Stability Periods will need to incorporate such periods into the eligibility provisions of their plan documents in order to avoid PPACA’s penalties.  This will allow employees who become, or cease to become, eligible for coverage by reason of a change in full-time, part-time or seasonal status to change their coverage and contribution elections.

Employers can rely on the guidance in the notice at least through the end of 2014.  Any guidance that is more restrictive will not apply until January 1, 2015, at the earliest. However, because the penalty first applies in 2014, an employer looking to have a 12-month Stability Period needs to start getting systems in place soon to measure hours for part-time employees to have the evidence to back up its determinations in 2014.

The specifics of the guidance are after the cut. 

Friday, September 7, 2012

On August 31, 2012, the Departments of Labor, Treasury and Health and Human Services jointly issued temporary guidance regarding the 90-day waiting period limitation under Public Health Service Act § 2708 that is part of PPACA.  The guidance can be found at DOL Technical Release 2012-02 and at IRS Notice 2012-59, which are identical.  In general, the limitation is meant to prohibit a group health plan or health insurance issuer from imposing a waiting period for coverage beyond 90 days.  The statute prevents an otherwise eligible employee or dependent from having to wait more than 90 days for coverage to become effective.

The guidance states that a “waiting period is the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective.”  Being eligible for coverage means the employee or dependent has met all of the plan’s substantive eligibility conditions, such as being in an eligible job classification.

Eligibility based solely on the lapse of time is permissible so long as the time period does not exceed 90 days.  Other conditions are permissible unless they have the effect of undermining the 90-day rule.  A plan may be compliant where, under the plan’s terms, an employee may elect coverage that would begin on a date that does not exceed a 90-day waiting period even where employees take additional time to elect coverage.

However, one of the examples in the guidance states that where cumulative hours of service are required for eligibility for part-time employees, up to 1,200 hours may be required before a part-time employee becomes eligible.  If more than 1,200 hours were required, the agencies would be consider that condition to be designed to avoid compliance with the 90-day waiting period limitation and therefore not compliant.  Under the example, a part-time employee can still be subject to an additional 90-day waiting period after meeting the 1,200 hours of service requirement. The guidance does not give any clarity on how hours of service are counted, or whether a plan may use equivalencies like in the retirement plan area.

The guidance also addresses the circumstance where a plan conditions eligibility on working a specified number of hours per week (or working full-time), and it cannot be determined at an employee’s date of hire whether or not an employee will work sufficient hours to be covered.  For this purpose, the guidance conforms to the applicable large employer rules under the “play or pay” penalty Internal Revenue Code § 4980H (and the guidance contemporaneously issued by the Treasury Department at Notice 2012-58).  We will address that guidance more fully in a later post, but generally the § 4980H guidance allows the plan a reasonable period of time up to 12 months, a “measurement period,” to determine it the employee meets the hours eligibility requirement.  The time period for determining whether the employee meets the hours condition will not be considered to violate the 90-day rule if coverage is made effective no later than 13 months from the employee’s start date plus, if the start date is mid-month, the time remaining to the first day of the next month.  The guidance provides that any employer may use this rule even if it is not subject to § 4980H.  The guidance provides a number of helpful examples.

Disclaimer/IRS Circular 230 Notice