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  • BC Network
    Tuesday, December 20, 2016

    claimIt might be tempting to conclude that the recent Department of Labor regulations on disability claims procedures is limited to disability plans.  However, as those familiar with the claims procedures know, it applies to all plans that provide benefits based on a disability determination, which can include vesting or payment under pension, 401(k), and other retirement plans as well. Beyond that, however, the DOL also went a little beyond a discussion of just disability-related claims.

    The New Rules

    The new rules are effective for claims submitted on or after January 1, 2018. Under the new rules, the disability claims process will look a lot like the group health plan claims process.  In short:

    • Disability claims procedures must be designed to ensure independence and impartiality of reviewers.
    • Claim denials for disability benefits have to include additional information, including a discussion of any disagreements with the views of medical and vocational experts and well as additional internal information relied upon in denying the claim. In particular, the DOL made it clear in the preamble that a plan cannot decline to provide internal rules, guidelines, protocols, etc. by claiming they are proprietary.
    • Notices have to be provided in a “culturally and linguistically appropriate manner.” The upshot of this is that, if the claimant lives in a county where the U.S. Census Bureau says at least 10% of the population is literate only in a particular language (other than English), the denial has to include a statement in that language saying language assistance is available. Then the plan must provide a customer assistance service (such as a phone hotline) and must provide notices in that language upon request.
    • New or additional rationales or evidence considered on appeal must be provided as soon as possible and so that the claimant has an opportunity to respond before the claims process ends.
    • If the claims rules are not followed strictly, then the claimant can bypass them and go straight to court. This does not apply to small violations that don’t prejudice the claimant.
    • As with health plan claims, recessions of coverage are treated like claim denials.
    • If a plan has a built-in time limit for filing a lawsuit, a denial on appeal has to describe that limit and include the date on which it will expire. Basically, claimants have to know that they need to sue by a certain date. The DOL noted in the preamble that, while this only applies to disability-related claims, they believe any plan with such a time limit is required to include a description or discussion of it under the existing claims procedure regulations.

    More information about the changes is available in this DOL Fact Sheet.

    What to Do

    While January 1, 2018 might seem like a long way off at this point, employers and plans need to consider taking the following steps early next year:

    1. For insured disability plans, plan sponsors need to engage their insurance carriers in a discussion about how these procedures will apply to them and what changes are needed to the insurance contracts. Some insurers may be slow to adopt these new procedures, which could put plan sponsors in a difficult position.
    2. For self-funded disability plans, plan documents will need to be updated, and procedures put in place.
    3. For retirement plans, there are some decisions to make. Recall that the procedures only apply if a disability determination is required. One way to avoid this is to amend the definition of disability so that it relies on a determination by the Social Security Administration or the employer’s long-term disability carrier. For defined contribution plans, this is likely to be the most expedient approach.

    For defined benefit pension plans, this may not necessarily work. To the extent the disability benefit results in additional accruals, such a change may require a notice under 204(h) of ERISA.  If a disability pension allows participants to elect a different from of benefit, then any change in the definition it may have to apply to future accruals under the plan, which means a disability determination may still be required for many years to come.  Additionally, tying a disability determination to something other than the SSA raises similar issues if the plan sponsor changes disability carriers or plans that change the definition of disability.

    Further, before going down the road of changing disability definitions, plan sponsors may want to consider whether a more restrictive definition, like the SSA definition, is consistent with their benefits philosophies. For plan sponsors who that cannot (or choose not to) amend their retirement plan disability definitions, plan documents must be amended before January 1, 2018 to incorporate these rules  and procedures must be developed to address them.

    1. All plans that have lawsuit filing deadlines, even if they don’t provide disability benefits, should revise their notices to include a discussion of that deadline.

     

    Wednesday, December 14, 2016

    Earlier this year, an employer was sued in a class action in Federal District Court for the Southern District of Florida for violating the notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) with respect to its COBRA election notice. Specifically, the employees alleged that the COBRA election notices provided by the employer did not include the information required by COBRA regulations. After failing to convince the court that the case should be dismissed, the employer agreed to establish a settlement fund for the affected employees and to correct the alleged deficiencies in its COBRA election notice. Since then, two similar lawsuits have been filed in Florida courts by employees who claim that the election notices provided by their respective employers were deficient and non-compliant with COBRA.

    COBRA provides that any employer with 20 or more employees that maintains a group health plan must provide a covered employee who experiences a qualifying event (and his or her covered spouse and dependents) with continuing health insurance coverage for at least 18 months. A qualifying event encompasses a number of situations which result in a loss of health insurance coverage.  The most common of these events are: (i) a covered employee’s voluntary or involuntary termination of employment (for reasons other than gross misconduct), (ii) a reduction in a covered employee’s work hours, (iii) a covered employee’s divorce or legal separation, (iv) a covered employee’s death, and (v) the loss of dependent child status.

    The COBRA regulations specify that employers must provide certain notices to employees, including a notice of their rights to elect continued health insurance coverage under the employer’s group health plan if the employee experiences a qualifying event. An employer’s (i) failure to provide the required notice or (ii) provision of a deficient notice may result in the assessment of statutory penalties of up to $110 per day for each employee who does not receive the notice or who receives a defective notice until the failure is corrected.

    The two later cases were filed in November and December 2016. While we await their respective outcomes, employers may wish to review their COBRA election notices against the DOL model COBRA election notice.

    Thursday, November 17, 2016

    secThe Securities Act of 1933 prohibits the offer or sale of securities unless either a registration statement has been filed with the SEC or an exemption from registration is applicable. Although most qualified plan interests qualify for an exemption from the registration requirement, offers or sales of employer securities as part of a 401(k) plan generally will not qualify for such an exemption.  Accordingly, 401(k) plans with a company stock investment option typically register the shares offered as an investment option under the plan using Form S-8.

    On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401(k) plans that (i) do not include a company securities fund but (ii) do allow participants to select investments through a self-directed brokerage window.  Open brokerage windows typically allow plan participants to invest their 401(k) accounts in publicly traded securities, including, in the case of a public company employer, company stock.  The SEC determined that registration in this situation would not be required as long as the employer does no more than (i) communicate the existence of the open brokerage window, (ii) make payroll deductions, and (iii) pay administrative expenses associated with the brokerage window in a manner that is not tied to particular investments selected by participants.  This means that the employer may not draw participants’ attention to the possibility of investing in employer securities through the open brokerage window.

    The SEC apparently was concerned that some employers have been advising participants regarding their ability to invest 401(k) plan assets in company securities through open brokerage windows. This might occur, for example, when an employer has decided to remove the company stock fund as an investment option because of concern over potential stock drop litigation; in communicating such a change, the employer might point out to participants that they still have the ability to purchase company stock through the open brokerage window.

    The takeaway for public companies that do not offer a company securities fund in their 401(k) plan but do offer an open brokerage window is clear. They should either assure that communications to 401(k) participants include no reference to the option to purchase company securities through the open brokerage window or, if such communications are desirable, register an appropriate number of securities using Form S-8.

    Wednesday, November 16, 2016

    CC000596In the latest round of ACA and Mental Health Parity FAQs (part 34, if you’re counting at home), the triumvirate agencies addressed tobacco cessation, medication assisted treatment for heroin (like methadone maintenance), and other mental health parity issues.

    Big Tobacco.  The US Preventive Services Task Force (USPSTF) updated its recommendation regarding tobacco cessation on September 22, 2015. Under the Affordable Care Act preventive care rules, group health plans have to cover items and services under the recommendation without cost sharing for plan years that begin September 22, 2016.  For calendar year plans, that’s the plan year starting January 1, 2017.

    The new recommendation requires detailed behavioral interventions.  It also describes the seven FDA-approved medications now available for treating tobacco use.  The question that the agencies are grappling with is how to apply the updated recommendation.

    Much like a college sophomore pulling an all-nighter on a term paper before the deadline, the agencies are just now asking for comments on this issue.   Plan sponsors who currently cover tobacco cessation should review Q&A 1 closely and consider providing comments to the email address marketform@cms.hhs.gov.  Comments are due by January 3, 2017.  The guidance does not say this, but the implication is that until a revised set of rules is issued, the existing guidance on tobacco cessation seems to control.

    Nonquantitative Treatment Limitations. Under applicable mental health parity rules, group health plans generally cannot impose “nonquantitative treatment limitations” (NQTLs) that are more stringent for mental health and substance use disorder (MH/SUD) benefits than they are for medical/surgical benefits.  “Nonquantitative” includes items like medical necessity criteria, step-therapy/fail-first policies, formulary design, etc.  By their very nature, these items are (to use a technical legal term) squishy.

    Importantly for plan sponsors, the agencies gave examples of impermissible NQTLs in Q&As 4 and 5. In Q&A 4, they describe a plan that requires an in-person examination as part of getting pre-authorized for inpatient mental health treatment, but does preauthorization over the phone for medical benefits.  The agencies say this does not work.

    Additionally, Q&A 5 addresses a situation where a plan implements a step therapy protocol that requires intensive outpatient therapy before inpatient treatment is approved for substance use disorder treatment. The plan requires similar step therapy for comparable medical/surgical benefits.  So far, so good.  However, in the Q&A, intensive outpatient therapy centers are not geographically convenient to the participant, while similar first step treatments are convenient for medical surgical benefits.  Under these facts, applying the step therapy protocol to the participant is not permitted.  The upshot, from the Q&A, is that plan sponsors might have to waive such protocols in similar situations.  This particular interpretation will not be enforced before March 1, 2017.

    Substantially All Analysis. To be able to apply a financial requirement (e.g. copayment) or quantitative treatment limitation (e.g. maximum number of visits) to a MH/SUD benefit, a plan must look at the amount spent under the plan for similar medical surgical benefits (e.g. in-patient, in-network or prescription drugs, as just two examples). Among other requirements, the financial requirement or treatment limitation must apply to “substantially all” (defined as at least two-thirds) of similar medical/surgical benefits.

    The details of that calculation are beyond the scope of this post, but Q&A 3 sets out some ground rules. First, if actual plan-level data is available and is credible, that data should be used.  Second, if an appropriately experienced actuary determines that plan-level data will not work, then other “reasonable” data may be used.  This includes data from similarly-structured plans with similar demographics.  To the extent possible, claims data should be customized to the particular group health plan.

    This means that, when conducting this analysis, plan sponsors should question the data their providers are using. If it is not plan-specific data, other more general data sets (such as data for an insurer’s similar products that it sells) may not be sufficient.  Additionally, general claims data that may be available from other sources is probably insufficient on its own to conduct these analyses.

    Medication Assisted Treatment. The agencies previously clarified the MHPAEA applies to medication assisted treatment of opioid use disorder (e.g., methadone). Q&As 6 and 7 provide examples of more stringent NQTLs and are fairly straightforward. Q&A 8 addresses a situation where a plan says that it follows nationally-recognized treatment guidelines for prescription drugs, but then deviates from those guidelines.  The agencies say a mere deviation by a plan’s pharmacy and therapeutics (P&T) committee, for example, from national guidelines can be permissible.  However, the P&T committee’s work will be evaluated under the mental health parity rules, such as by taking into account whether the committee has sufficient MH/SUD expertise.  Like we said, it’s squishy.

    Court-Ordered Treatment. Q&A 9 specifically addresses whether plans or issuers may exclude court-ordered treatment for mental health or substance use disorders. You guessed it — a plan or issuer may not exclude court-ordered treatment for MH/SUD if it does not have a similar limitation for medical/surgical benefits. However, a plan can apply medically necessary criteria to court-ordered treatment.

    The Bottom Line.  The bottom line of all this guidance is that plan sponsors may need to take a harder look at how their third party administrators apply their plan rules.  Given the lack of real concrete guidance, there’s a fair amount of room for second guessing by the government.  Therefore, plan sponsors should document any decisions carefully and retain that documentation.

    Monday, October 31, 2016

    The IRS recently released updated limits for retirement plans.  Our summary of those limits (along with the limits from the last few years) is below.

    Type of Limitation 2017 2016 2015 2014
    Elective Deferrals (401(k), 403(b), 457(b)(2) and 457(c)(1)) $18,000 $18,000 $18,000 $17,500
    Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (457(b)(3) and 402(g) provide separate catch-up rules to be considered as appropriate) $6,000 $6,000 $6,000 $5,500
    SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals $3,000 $3,000 $3,000 $2,500
    415 limit for Defined Benefit Plans $215,000 $210,000 $210,000 $210,000
    415 limit for Defined Contribution Plans $54,000 $53,000 $53,000 $52,000
    Annual Compensation Limit $270,000 $265,000 $265,000 $260,000
    Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993 $400,000 $395,000 $395,000 $385,000
    Highly Compensated Employee 414(q)(1)(B) $120,000 $120,000 $120,000 $115,000
    Key employee in top heavy plan (officer) $175,000 $170,000 $170,000 $170,000
    SIMPLE Salary Deferral $12,500 $12,500 $12,500 $12,000
    Tax Credit ESOP Maximum balance $1,080,000 $1,070,000 $1,070,000 $1,050,000
    Amount for Lengthening of 5-Year ESOP Period $215,000 $210,000 $210,000 $210,000
    Taxable Wage Base $127,200 $118,500 $118,500 $117,000
    FICA Tax for employees and employers 7.65% 7.65% 7.65% 7.65%
    Social Security Tax for employees 6.2% 6.2% 6.2% 6.2%
    Social Security Tax for employers 6.2% 6.2% 6.2% 6.2%
    Medicare Tax for employers and employees 1.45% 1.45% 1.45% 1.45%
    Additional Medicare Tax* .9% of comp >$200,000 .9% of comp >$200,000 .9% of comp > $200,000 .9% of comp > $200,000

    *For taxable years beginning after 12/31/12, an employer must withhold Additional Medicare Tax on wages or compensation paid to an employee in excess of $200,000 in a calendar year for single/head of household filing status ($250,000 for married filing jointly).

    Tuesday, October 25, 2016

    HHScloud recently posted guidance on its website addressing HIPAA’s approach to cloud computing.  Basically, any time a cloud service provider has electronic protected health information (ePHI), it’s a business associate.  This is true even if the cloud provider only stores encrypted ePHI and even if the cloud provider does not have the encryption key (and therefore, in theory, could not access the data).  This means that both health plans and their business associates who use outsourced cloud computing services must have business associate agreements with those services.

    At first blush, this might seem like it doesn’t directly touch the health plan, but cloud computing can take many forms. For example, if your company has an off-site data server that is managed by a third party and ePHI is stored on that server, a business associate agreement with that third party is probably necessary.  Even if all you do is use something like Google Docs, OneNote, Evernote, or Dropbox for storage, that could be considered cloud computing subject to these rules.  Therefore, the sweep is broad and employees working on health plan matters would be well advised to consult with the plan’s Security Officer and their IT departments about this guidance.  HHS’s position is that it is a HIPAA violation if ePHI is shared with a cloud provider and there’s no business associate agreement in place.

    The HHS guidance provides some points to consider in contracting with cloud providers. Some of those points will likely be addressed in a general service agreement between the company and the provider.  In addition, this one page summary from Bryan Cave’s data privacy team has some additional general thoughts on issues to consider when contracting with cloud providers.

    Next Steps

    In response to this information, employees charged with health plan matters should consider the following steps:

    1. Evaluate with your IT department and HIPAA Security Officer whether you use any cloud service providers.
    2. Review the HHS guidance with the relevant IT personnel.
    3. Determine whether ePHI is created, received, maintained, or transmitted by the cloud service provider or if it is possible to avoid having ePHI handled by the cloud service provider.
    4. Determine whether a business associate agreement is in place with the cloud service provider (and if not, get one as soon as possible). In negotiating that agreement, consider what data protections you may need or want to include.
    5. Include an evaluation of the cloud service provider in your HIPAA risk assessment.
    Thursday, October 20, 2016

    old-way-new-wayWith the looming end of the determination letter program as we know it, the IRS has issued an updated Revenue Procedure for the Employee Plans Compliance Resolutions System (EPCRS). Released on September 29, 2016, Rev. Proc. 2016-51 updates the EPCRS procedures, replaces Rev. Proc. 2013-12 and integrates the changes provided in Rev. Proc. 2015-27 and Rev. Proc. 2015-28. The updated revenue procedure is effective January 1, 2017 and its provisions cannot be used until that date. Rev. Proc. 2013-12, as modified by Rev. Proc. 2015-27 and Rev. Proc. 2015-28, should be used for any corrections under the EPCRS for the remainder of 2016. Highlights from the new revenue procedure are outlined below.

    Changes

    • Determination Letter Applications. Determination letter applications are no longer required to be submitted as part of corrections that include plan amendments. The new revenue procedure also clarifies that any compliance statement for a correction through plan amendment will not constitute a determination that the plan amendment satisfies the qualification requirements.
    • Favorable Letter Requirements. A qualified individually designed plan submitted under the Self Correction Program (SCP) will still satisfy the Favorable Letter requirement when correcting significant failures even if its determination letter is out of date.
    • Fees. The Voluntary Correction Program (VCP) fees are now user fees. Effective January 1, 2017 a plan sponsor must refer to the annual Employee Plans user fees revenue procedure to determine the applicable VCP user fees.
    • Model Forms. The model forms for a VCP submission (Forms 14568-A through 14568-I) can now be found on the IRS website.
    • Audit CAP Sanctions. The method used to determine Audit Closing Agreement Program (Audit CAP) sanctions has been revised. Sanctions will no longer be a negotiated percentage of the Maximum Payment Amount (MPA), but will be determined by the IRS on a “facts and circumstances” basis. The MPA will be one factor used to determine a sanction. Generally, sanctions will not be less than VCP fees.
    • Refunds. The IRS will no longer refund half of the user fee if there is disagreement over a proposed correction in an Anonymous Submission.

    Incorporations

    • The provisions of Rev. Proc. 2015-27, which clarify the methods that may be used to correct overpayment failures, modify the SCP for Code Section 415(c) failures to extend eligibility to certain plans with repeated corrections of excess annual additions so long as elective deferrals are returned to affected employees within 9½ months after the end of the plan’s limitation year, and lower the fees for certain VCP submissions, have been incorporated.
    • The provisions of Rev. Proc. 2015-28, which modify EPCRS by adding safe harbor correction methods for employee elective deferral failures in both 401(k) and 403(b) plans, have also been incorporated into Rev. Proc. 2016-51.
    Friday, October 7, 2016

    where-are-youFor many years, the PBGC has been helping reunite missing participants with their benefits under single-employer defined benefit plans. Now, a new PBGC proposed rule may open up the program to missing participants under other terminated plans.

    Under this proposed rule, terminated defined contributions plans may choose to transfer benefits of missing participants to the PBGC or to establish an IRA to receive the transfer and send information to the PBGC about the IRA provider.   The PBGC will attempt to locate the missing participants and add them to a searchable database. The PBGC notes that once the program is established, it may issue guidance making the reporting requirement mandatory for defined contribution plans as authorized under section 4050 of ERISA.

    The PBGC will accept the transfer of accounts of any size. If a plan sponsor chooses to transfer accounts to the PBGC, it must transfer the accounts of all missing participants.  There will be no fee for transfers of $250 or less. For transfers above that amount, a one-time flat fee will apply which the PBGC indicates will not exceed its costs associated with the program.  Initially, the fee has been set at $35.

    This newly-proposed voluntary program for defined contribution plans has certain limitations. For instance, it would only be available to locate missing participants upon plan termination.  It would not be available to locate missing participants for ongoing plans.  For example, the program would not be available to find missing participants in connection with a plan correction under EPCRS.  In addition, although the program would be available to many types of single-employer and multiemployer defined contribution plans, including abandoned plans, it would not be available to governmental plans and church plans.

    The proposed rule also establishes a similar voluntary program for terminated professional service defined benefit plans with 25 or fewer participants and a mandatory program for terminated multiemployer plans covered by title IV of ERISA, similar to the existing program for single-employer defined benefit plans.

    Finally, the proposed rule contains numerous changes to the existing rules. Most notable for defined contribution plans, the proposed rule modifies the criteria for being “missing” to include distributees of defined contribution plans who fail to elect a form or manner of distribution although their whereabouts are known.  The PBGC notes that this change is consistent with existing DOL regulations which currently treat such individuals similarly to individuals who cannot be found for purposes of the safe harbor for terminated defined contribution plans.  For terminating defined benefit plans, it would include distributees subject to mandatory “cash-out” who do not return an election form.  According to the PBGC, it can be difficult to find the benefits of non-responsive distributees after they have been transferred to IRAs.  It hopes to address this problem by bringing non-responsive distributees “into the PBGC fold” with its centralized governmental repository and pension search capability.   Defined benefit plan distributees whose benefits are not subject to a mandatory cash-out provision would only be considered missing if the plan did not know their whereabouts.   In making this distinction, the PBGC indicates that individuals with benefits that are not subject to cashout enjoy rights and features not available to those whose benefits may be cashed out and, absent an election, their benefits will be annuitized, preserving those rights and features.  In addition, for title IV plans the identity of the insurer issuing the annuity must be provided to the PBGC if their whereabouts are unknown.

    Other changes include more detailed requirements for diligent searches for defined benefit plans similar to those already required of defined contribution plans by DOL guidance, simplification of the existing rules and assumptions used for valuing benefits to be transferred to the PBGC, and changes in the defined benefit plan rules for paying benefits to missing participants and their beneficiaries.

    The new rule is generally proposed to be effective for plan termination dates after calendar 2017. In addition to the proposed rule, the PBGC has issued a set of FAQs as well as draft forms with instructions for each of the proposed programs.  Additional information can be found on the PBGC website here.

    Tuesday, October 4, 2016

    stethoscope-and-dollar-billsWhile the litigation over wellness programs rages on, the EEOC is still marching forward with the implementation of its wellness rules that we wrote about previously.  As most people in the wellness space are aware, the EEOC’s rules under ADA and GINA do not align completely with the HIPAA wellness rules, particularly on the issue of the amount of the incentive.  The ADA and GINA rules apply to all wellness programs, whether participation-only or health contingent, and generally limit the incentive that is available to 30% of the cost of self-only coverage.

    One open question under the ADA and GINA rules was how to calculate the incentive when an employer offers multiple tiers of coverage (e.g. Gold, Silver, Bronze) under a health plan. The ADA and GINA rules address the calculation of the incentive when there are multiple group health plans, but not multiple tiers.  When an employer offers multiple group health plans, and an employee is eligible for a wellness program as long as he or she is enrolled in any one of them, then the maximum incentive is 30% of the lowest cost self-only option among the plans.

    In a recently released informal discussion letter, the EEOC addressed how these rules apply to a single group health plan with multiple tiers where an employee enrolled in any tier can participate in the same wellness plan.  Not surprisingly, the same rules used for multiple group health plans apply.  In other words, the incentive is limited to 30% of the lowest cost self-only tier of coverage.  (There are minor language differences between the ADA and GINA regulations in this regard, but the EEOC says they are “legally inconsequential.”). This means that if a company offers Gold, Silver, and Bronze tiers, for example, and employees enrolled in any tier get the same wellness plan, the reward is limited to 30% of the self-only Bronze premium.

    While not a watershed piece of guidance, this clarification at least lets employers know what the rules of the road are. Because the letter is informal, it is not necessarily binding on the EEOC, but given the restrictive nature of the guidance, it seems unlikely the EEOC would take a different position in court or an investigation.  If you have comments about this piece of EEOC guidance, or the wellness program rules in general, feel free to leave them in the comment section on this post.

    Friday, September 23, 2016

    griefWhen the IRS announced that it would virtually eliminate the determination letter program for individually designed retirement plans, many practitioners moved through the classic Kübler-Ross five stages of grief (see the picture at the right).  Some have yet to finish.  In Announcement 2016-32, the IRS requested comments on how these plans can maintain compliance going forward since determination letters are no longer available.

    As a general rule, the IRS used to deny plans the ability to incorporate tax code provisions by reference (rather than reciting them wholesale in the plan), except for a very short list available here.  The IRS is asking if there are additional provisions that would also be appropriate to incorporate by reference.  This would avoid the need to reproduce these provisions wholesale and run the risk of a minor foot fault if the language did not line up.  It would also help avoid the need to update plans for law changes, in some cases.

    Additionally, much to the anger of many practitioners, the IRS has historically sometimes required a plan to include provisions that were not applicable to the plan.  For example, there are special diversification requirements for plans that hold publicly-traded employer stock, yet the IRS has required them even for private companies.  One wonders if the IRS actually observed numerous situations where privately held corporations became public companies and then failed to amend those of their plans that held employer stock.  What a scourge on the individually designed plan world this must have been!  The IRS would like to know if there are other provisions that could possibly be avoided and the likelihood that the plan sponsor will actually amend the plan when the provision becomes applicable.  While there may be a few of these provisions out there, there likely aren’t enough to make a significant difference in the length of individual designed plans or to stem the tide of faulty individually designed plans.

    For those employers who still want the comfort of an IRS letter of some kind, they could bargain with a company that offers a pre-approved plan.  However, there are challenges to switching to a pre-approved prototype or volume submitter plan, and the IRS wants to know about them.  For example, employers with unique plan designs or multiple different benefit formulas may not be able to fit under a particular pre-approved form.  Under the rules applicable to those plans, too much variation from the pre-approved form destroys the ability to rely on the letter and turns the plan into an individually designed plan (which can’t then get a determination letter).

    What might depress practitioners most is that the above areas are the only ones the IRS came up with as possibilities.  For example, it would make sense to let plans apply for a determination letter when there is a plan merger.  The IRS has historically requested the documents of plans that were merged into a plan under determination letter review.  Without allowing this, the IRS will end up not reviewing a plan until it is terminated.  At that time, the Service may be asking for plans that were merged from 20 or more years ago.  That level of recordkeeping would be prohibitive for some plan sponsors.  Additionally, if the IRS found an error at that time, it could be extremely difficult to fix.  Therefore, allowing a complete review of the plan when it is a party to a plan merger would be highly valuable. Additionally, since plans will be permitted to obtain a determination letter on initial adoption, a limited determination approval process might be available to review amendments to the already approved plan rather than the entire plan again.

    The Service will accept comments in writing on or before December 15.  Service employees responsible to draft the rules may also read this post, so feel free to leave your comments below.