In honor of National Employee Benefits Day, we’re taking a break from guidance updates and commentary and providing a little fun. Over the next few days, we will be posting some crossword puzzles focused on the fascinating and complex world of benefits. We will post the answers on Saturday so you can check your work. Enjoy!
Today we recognize the important work that Human Resource professionals, plan administrators, trustees and fiduciaries, as well as professional advisors do on behalf of the nation’s workers and employers. Beyond the apparent role of protecting workers, benefit professionals also help American business navigate complex regulatory rules for the purpose of attracting and retaining the workforce it needs to attain its goals. It is this ability to help a business achieve its objectives while simultaneously creating benefit for the worker that makes our work so rewarding. Happy National Employee Benefits Day!
Lisa Van Fleet
Leader of Bryan Cave’s Employee Benefits and Executive Compensation Practice Group
On November 21, 2013, the U.S. Government Accountability Office (GAO) issued a report entitled “Clarity of Required Reports and Disclosures Could Be Improved,”addressing the resources currently allocated by Congress to the oversight of private sector pension plans under ERISA by the Department of Labor (DOL), the Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC). The report was commissioned to “look at how useful all the pension reporting and disclosure requirements are to sponsors, participants and government officials and determine whether there are ways to improve the system.” As plan sponsors know, participants are inundated with a deluge of disclosure requirements and there are multiple reporting requirements to various government agencies, both of which the GAO report essentially confirms.
Some of the more interesting observations of the GAO include:
- The GAO identified 70 different reports and 60 different disclosures arising from provisions of ERISA and the Internal Revenue Code.
- The GAO evaluated the DOL and other ERISA agencies online resources and found them to be “not clear, comprehensive or up-to-date.” Additionally, the GAO noted that the DOL’s guide listing required reports and disclosures had not been updated since October 2008 and did not include many of the IRS reports and disclosures and several of the reports and disclosures under the DOL’s and PBGC’s purview. The GAO also stated that neither the PBGC or IRS sites provide comprehensive information regarding reporting and disclosure requirements and noted that the PBGC site does not provide a central location for reporting and disclosure requirements.
- The GAO found poor management of data, spread across the three agencies, which it thought resulted in the potential for misleading information included in notices provided to some retirees. In particular, GAO pointed to Form 8955-SSA, the registration statement identifying separated participants with deferred vested benefits. GAO stated that the vested benefit data provided in such forms and notice was “not managed in a way that ensures their accuracy.” The data on the Form 8955-SSA is provided by plan sponsors to the IRS, which merely passes the form on to the Social Security Administration (the “SSA”), which in turn prepares notices for retirees without any verification of the data. The SSA also provides the DOL as the point of contact in such notices.
- The GAO tested ten model notices from the agencies against federal plain language guidelines and found that several of the model notices failed to meet such guidelines. Failures included not explaining technical terrms used in the notices and cross referencing other sources of information to understand the notices, not explaining what a participant is supposed to do with the information in the notice, and not providing language about assistance available to non-English speakers. Additionally, based on a “automated grade-level readability test,” the GAO found that some of the model notices ranged from requiring a tenth-grade reading level to a college senior reading level (including the form blackout notice and ERISA rights statement).
The GAO ultimately emphasized the need to enhance plan sponsor compliance and the efficiency and effectiveness of reports and disclosures in light of the “increasingly complex world of private sector pension plans.” As the current system leaves the DOL with the responsibility for retaining pension information, despite splitting the responsibility for collecting such information between the IRS and the SSA, the GAO suggested that Congress should shift responsibility to the DOL (perhaps in partnership with the PBGC) as central hub for collecting and managing private pension plan information. Additionally, the GAO suggested that the agencies collaborate to: (1) create (and regularly updating) a well-organized and complete guide for plan sponsors regarding their required reporting and disclosure requirements; (2) define criteria complying with the readability provisions in ERISA and the Internal Revenue Code, and apply the criteria to agency-generated model notices; and (3) direct plan sponsors to post to any intranet website maintained by the employer a copy of the most current Summary Plan Description and any Summaries of Material Modifications issued subsequent to such Summary Plan Description.
The responses to the report provided by the agencies indicate their willingness to consider collaborating on the points above. However, with limited government resources and, as the GAO notes, an increasingly complex world of benefits, it seems unlikely that such collaboration will be able to happen in the near future. Until then, plan sponsors should continue to do their best to communicate their benefits in a meaningful and understandable fashion, not just because it is the law, but also to help their employees understand, and value, the benefits they’re receiving.
- If your plans are filed in “Cycle C” for determinations letters (i.e., plan sponsor’s EIN ends in 3 or 8), address items needed for the IRS filing before the end of the year. The filing deadline is January 31, 2014, but notices to “interested parties” must be distributed no later than 10 days before the filing. Set that filing date and prepare the plan restatement before the ball drops.
- If your company did not timely adopt a written 403(b) plan document, you may qualify for a reduced compliance fee under the IRS’ correction program, but only if the filing is made before the ball drops.
- Most defined benefit plans have been amended to incorporate the benefit accrual and distribution restrictions that apply if the plan’s funding drops below certain thresholds. These Code Section 436 rules must be added to your defined benefit plan by written amendment before the ball drops if you sponsor a calendar year plan.
- More detailed information on the above items can be found here.
- Have your payroll and benefit administration systems been updated to reflect the new qualified plan limits for 2014? The elective deferral pre-tax/Roth limit remains unchanged at $17,500. The limit on compensation taken into account for purposes of calculating maximum contributions and benefits will go from $255,000 to $260,000. The Social Security taxable wage base will go from $113,700 to $117,000.
The Defense of Marriage Act (“DOMA”) – Repeal of Section 3
- Qualified retirement plans, 403(b) plans and 457 plans should be administered by treating a same sex spouse as a spouse for purposes of determining rights and benefits under the plan. An individual is a same sex spouse to a participant if the individual and participant have a valid marriage under the laws of the state where the marriage occurred. While amendments to the plans are not required before the ball drops, a review of beneficiary forms and other plan administration documents and processes is recommended to ensure compliance with these new rules. We expect additional guidance from the Internal Revenue Service and the Department of Labor before 2014, but will likely have well into the new year to adopt plan amendments.
- Welfare benefit plans should be reviewed to ensure that the definitions of spouse are consistent with the company’s intent regarding coverage of same sex spouses and, for insured plans, any state laws. Enrollment forms, summary plan descriptions and other plan administration materials should be reviewed and updated as soon as possible.
- Same sex spouses are now dependents under federal law for purposes of determining the taxability of employer-provided health benefits and the ability to pay for health coverage on a pre-tax basis. Before the ball drops, payroll systems should be updated to reflect this change and make any required corrections for 2013. More information on this topic can be found here.
- Under Code Section 409A rules, compensation deferral elections for amounts otherwise payable in 2014 must be documented and irrevocable before the ball drops. This deadline is not flexible!
- Some employers utilize a rule for administrative convenience that permits income and employment tax withholding on certain items of compensation to be made at the end of the year (i.e., imputed income on after-tax long-term disability premiums). Employers should ensure that all payroll deductions for taxable compensation for the year are taken into consideration before the ball drops.
Group Health Plan Amendments Due to Health Care Reform
- Most stand-alone Health Reimbursement Accounts (“HRAs”) are no longer permitted. You may need to amend your HRA before the ball drops to integrate it with your major medical plan and to reflect that participants will be provided an opportunity to permanently opt out of the HRA and waive future reimbursements, as described here.
- Effective for plan years beginning on or after January 1, 2014, group health plans will become subject to several new Health Care Reform mandates. Before the ball drops, your group health plan may require amendments due to the following:
- Plans may not establish annual dollar limits on essential health benefits for any participant or beneficiary.
- Plans may not impose preexisting condition exclusions (but still need to send HIPAA creditable coverage notices to terminating participants through 2014).
- Plans will be prohibited from applying a waiting period (i.e., the period 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) which exceeds 90 days.
- Non-grandfathered plans may not deny a participant who is eligible to participate in an “approved clinical trial” participation in that clinical trial, or deny or limit “routine patient costs” for items and services furnished in connection with participation in such a trial.
- Non-grandfathered plans must limit out-of-pocket maximums to no more than $6,350 for self-only coverage and $12,700 for family coverage.
- Click here for a complete year-end checklist for group health plans.
Over the last two years, the Bryan Cave Employee Benefits & Executive Compensation Group has been focusing on how to best communicate with you – our valued clients and friends. In addition to our traditional Client Alerts, we’re now reaching out in other ways by sending monthly compliance reminder emails, maintaining this active and vibrant blog (benefitsbrayncave.com) and utilizing a variety of social media platforms including Twitter and LinkedIn, to bolster our visibility and connect with more people.
We’d like to hear from you about what you like, don’t like and what mediums you think serve you the best in keeping up in today’s highly regulated environment. To that end, we’ve prepared a quick survey (it should take no more than 5 minutes to complete) where you can provide us feedback on our group’s communication platform. We sincerely value your opinion and hope that you’ll take a few minutes to give us your thoughts.
To access the anonymous survey, please click here.
If you have questions, please contact us. Thanks very much for your input!
Putting to rest the speculation that the individual mandate may be delayed, yesterday the Treasury Department and IRS issued final regulations regarding the individual mandate under the Affordable Care Act (“ACA”). The individual mandate requires individuals to maintain health insurance (i.e. “minimum essential coverage”) or pay a penalty (i.e. a “shared responsibility payment”).
The final regulations made a few clarifications but largely left unchanged the proposed regulations (released Jan. 30th). Individuals should go into 2014 with the expectation that they will pay the shared responsibility penalty unless they have minimum essential health care coverage.
Changes include the following:
• Specifically identifying the terms used in IRC § 5000A, which requires the shared responsibility payment, are the same terms otherwise used in the ACA (e.g. health insurance coverage, health insurance issuer, individual market, and state).
Minimum Essential Coverage:
• Clarifying that eligible employer-sponsored plans include plans issued on behalf of an employer.
• Modifying the definition of “self-insured group health plan” to be an eligible employer-sponsored plan, regardless of whether the plan could be offered in the large or small group market in a state.
• Clarifying (i) that qualified health plans offered through Exchanges are plans in the individual market and (ii) that a plan offered to one specific individual is a plan in the individual market only if the plan is health insurance coverage under the ACA.
• Clarifying that an individual eligible for continuation or retiree coverage because of a relationship to a former employee is treated in the same manner as the former employee.
• Removing the simplified method rule to determine the premium for the applicable plan.
• Including tobacco use as a characteristic of individuals in a taxpayer’s family that will be taken into account to identify the applicable plan.
• Clarifying that a taxpayer with household income below the applicable filing threshold who files a federal income tax return may claim the exemption on the filed tax return.
• Providing gaps in coverage prior to January 1, 2014 are not taken into account when measuring the length of a coverage gap in 2014.
• Noting that the authority to define circumstances giving rise to a hardship exemption (and authority to grant hardship exemptions) resides with the Department of Health and Human Services (“HHS”) and refers to the definition of hardship in the HHS regulations..
Computation of Shared Responsibility Payment:
• No substantive changes
Administration and Procedure:
• No substantive changes
Tomorrow, Wednesday June 26th, the Supreme Court is expected to release two opinions related to same-sex marriage: Windsor v. United States – a constitutional challenge to Section 3 of DOMA and Hollingsworth v. Perry – a constitutional challenge to Prop 8. [Additional background information may be found here.]
While same-sex marriage supporters wait anxiously for the rulings, employers are also waiting to see how these rulings may affect employee benefit offerings. A broad ruling could mean that employers would need to provide benefits and protections to same-sex spouses immediately, though many commentators believe that the court will not rule broadly in either case (i.e. both cases could be dismissed for lack of standing).
If the court does overturn Section 3 of DOMA, many uncertainties for employers would still exist, such as what benefits and protections must be provided to same-sex spouses that married in one state but now live in a state that does not recognize same-sex marriage. Due to Section 2 of DOMA (this section is not at issue in the current case), states are able to avoid recognizing same-sex marriages performed in other states under the Full Faith and Credit Clause. If Section 3 is overturned, will Section 2 still be valid and enforceable? Will employers need to keep track of what states their employees were married in and what states they currently reside in and change benefits accordingly? We’ll just have to wait and see what SCOTUS says.
Below is our most recent list of News & Notes from the week that was. Let us know what you think. Should we continue this feature?
- New York City is considering using the city’s public pension funds to finance housing for those displaced by Hurricane Sandy.
- A recent New York Life study confirms our thinking that, when it comes to retirement saving, people tend to take the path of least resistance.
- Continuing with our unplanned New York theme, the New York Times recently reported how some non-traditional medical practitioners were lobbying to be included as “essential health benefits” under health care reform. Is acupuncture essential?
- Going completely to the other coast, CBS Los Angeles reported that LA County officials were scrambling to retain “paying patients” ahead of 2014.
- Apparently, defined contribution plan fees were at a record low in 2012. Do you think fee disclosure had anything to do with that?
- Finally, can you imagine buying health insurance at the grocery store? That may happen in the future, says this Kaiser Health News report. Seeing the premium quotes might make us think twice about some of our purchases (Twinkies are healthy, right?).
Just as we did last week, below, we share some recent benefits-related(ish) stories and other links.
- Today would have been the deadline for states to submit their PPACA health insurance exchange blueprints, but HHS extended the deadline for the blueprints and then, a few days later, extended the deadline for states to tell HHS if they were starting an exchange. As these reports from Kaiser show, some states are in and some states are out. State Refor(u)m is keeping a list of state responses here.
- The IRS released the latest edition of the Employee Plans News with some helpful information about plan administrative issues.
- InvestmentNews reports that 401(k) plans rode out the Great Recession just fine, thank you very much.
- The New York Times recently featured one company that is offering income for life through its 401(k) plan. Is this something you’re considering?
- We shared previously about some actions the federal government may take to address the fiscal cliff, but this article talks about what states are doing.
- This Wall Street Journal article shares some innovative weight loss technologies employers are using to curb health care costs.