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  • BC Network
    Thursday, May 3, 2012

    On April 26, the IRS released three “requests for comment” on various provisions under the Patient Protection and Affordable Care Act (“PPACA” or “health reform”). While the IRS is soliciting comment, it also gave some indication of how it was leaning on each of the issues it addressed. This first post (of three) discusses the comments on the determination of “minimum value.”

    Under PPACA, if an employer plan does not provide “minimum value,” then an employee may be eligible for a premium tax credit through the state-based insurance exchanges, if he or she meets the other applicable requirements. If an employee takes advantage of that tax credit, the employer will be subject to “pay or play” penalties under health reform. Therefore, “minimum value” matters. (It is worth noting that HHS previously found that about 98% of individuals covered by employer-sponsored plans were enrolled in plans providing minimum value as described in the IRS guidance.)

    In Notice 2012-31, the IRS basically outlined three approaches it may use to determine minimum value:

    • The use of an actuarial value or minimum value calculator that will be provided by HHS and the IRS. Using either calculator, employers would enter certain plan information into the calculator (such as benefits, cost-sharing, etc.) and the calculator would determine if the plan provides minimum value.
    • Self-funded plans and insured large group plans would be allowed to use the minimum value calculator, which is expected to use claims data reflecting typical self-insured employer plans.
    • An array of design-based safe harbors in the form of checklists. Basically, if the employer checks enough boxes on the checklist of available benefits and cost-sharing terms, the plan will be deemed to provide minimum value. The items on the checklists would provide minimum cost-sharing terms for different benefits and the employer could “check the box” if its cost-sharing terms were at least as generous as those on the list.
    • For plans with nonstandard features (like quantitative limits on certain “core” benefits, like hospital days) that cannot use the calculators, the employer can obtain a certification by an enrolled actuary.

    Actuarial value will be determined based on the health expenses expected to be incurred by a standard population, rather than the population the plan actually covers. Contributions to HSAs and HRAs will be included in determining actuarial value (but apparently not FSAs).

    Why the two calculators? HHS is going to establish the methods for determining actuarial value. HHS previously issued an Actuarial Value and Cost-Sharing Bulletin outlining its expected approach in these areas, but regulations will provide final guidance. Those rules will apply to qualified health plans offered in the exchanges and to plans in the individual and small group markets because all of those plans will need to cover all the “essential health benefits” (EHBs) mandated by PPACA. The actuarial value calculator will measure value based on the methods HHS will use to determine value for plans required to cover EHBs.

    However, self-insured plans and insured plans in the large group are not required to cover any of the essential health benefits. Therefore, HHS and the IRS will develop the minimum value calculator so that the actuarial value of those plans can be determined without regard to whether or not they cover all of the EHBs. The minimum value calculator will focus on the four categories of benefits that HHS has determined make up the lion’s share of a plan’s actuarial value: (1) physician and mid-level practitioner care, (2) hospital and emergency room services, (3) pharmacy benefits, and (4) laboratory and imaging services.

    The IRS has requested comments on these methodologies (including a few specific areas) by June 11, 2012 at the contact information in the Notice. (You can also leave us a comment in the fields below, but we won’t promise the IRS will read it.)

    Related Links

    IRS Notice 2012-31

    HHS Report on Actuarial Value and Employer-Sponsored Insurance

    HHS Actuarial Value and Cost-Sharing Bulletin

    Other Health Reform Posts

    Disclaimer/IRS Circular 230 Notice

    Wednesday, April 11, 2012

    In a recent decision, the Sixth Circuit Court of Appeals upheld an indemnification of multiemployer plan withdrawal liability in an collective bargaining agreement.

    In the case, the employer and labor union had bargained that the union would indemnify the employer for any withdrawal liability from the multiemployer plan. The union, however, subsequently disclaimed its representation of the employees. As a result of that disclaimer, the union was no longer the exclusive bargaining representative of the affected employees and the collective bargaining agreement terminated. As a result, the employer effected a withdrawal from the multiemployer pension to which it had been obligated to contribute and incurred a substantial withdrawal liability.

    It so happened that the pension fund in question was the Central States Southeast and Southwest Areas Pension Fund, which is known to have had funding problems for some time. When the pension fund assessed withdrawal liability on the employer, the employer sought indemnification from the union. Upon a challenge on the enforceability of that indemnification provision, the court upheld the provision reasoning that it was analogous to purchasing fiduciary liability insurance, which is expressly permitted under ERISA Section 410.

    While this case may be unique on its facts, it may prove helpful to contributing employers to multiemployer pension plans who wish to have the labor union they are negotiating with share some or all of the pain of a withdrawal liability from a multiemployer plan. The holding could also potentially be used to support passing along surcharges or other costs of multiemployer plan participation to the union, assuming the union is willing to agree. Employers entering into union negotiations should consider whether this protection (or something like it) is worth pursuing.

    Friday, January 13, 2012

    An Eastern District of Michigan court recently ruled that retired union members must arbitrate their claims seeking a lifetime of fully-paid retiree medical benefits under a CBA (UAW v. Kelsey-Hayes Co., E.D. Mich., No. 2:11-cv-14434-JAC-RSW, 12/22/11).

    Prior to the plaintiffs’ retirement in the late 1990s, their collective bargaining unit and their employer entered into a CBA which required that the employer would pay the full cost of medical coverage for eligible retirees and their spouses. However, in September 2011, the employer’s successor announced that, effective January 1, 2012, it would discontinue its current healthcare plan for Medicare-eligible retirees and surviving spouses.

    The union, on behalf of the retirees, filed this lawsuit alleging that they were entitled to a lifetime of fully-paid medical benefits and that the defendant employers’ conduct breached the terms of the parties’ CBA as well as their fiduciary duties under ERISA. In response, the defendants filed a motion seeking to compel arbitration of the plaintiffs’ claims pursuant to a “plant closing agreement” which was entered into in 2001 and contained a broad arbitration clause.

    In granting the defendants’ motion to compel arbitration of the plaintiffs’ claims, the court rejected the plaintiffs’ contentions that (1) Sixth Circuit precedent clearly states that retirees cannot be forced to arbitrate their claims; (2) the plant closing agreement excludes retiree benefits from the general arbitration clause; (3) the terms of the CBA should govern since plaintiffs rely primarily upon the CBA and not the plant closing agreement for their claims; and (4) some of the retirees covered by the action were excluded from the application of the plant closing agreement. Rejecting each of these arguments in turn, the district court found that the plaintiffs failed to show any Sixth Circuit precedent that exempts retirees from mandatory arbitration when contractually required. The court also determined that the plant closing agreement – and its broad arbitration provision– which plaintiffs’ relied upon to assert their right to guaranteed medical benefits, was controlling on this issue. Thus, the anti-arbitration provision contained in the CBA was moot.

    The opinion was authored by Judge Julian Abele Cook Jr. and is available online at:

    Wednesday, December 28, 2011

    Recently, the New York State Department of Taxation and Finance issued an Advisory Opinion regarding whether New York State may impose income tax on distributions from a nonqualified deferred compensation plan made to a former resident.  Under federal law, states may not impose income tax on these retirement payments. Plan sponsors that participate in nonqualified deferred compensation plans should be aware of the tax implications of this law.

    Click here to view the Alert.

    Thursday, October 13, 2011

    This is a brief reminder on common time-sensitive matters. We distribute these by email every month. If you would like to be added to the list, please comment below or email one of us. If you have questions, please call one of us. Thanks very much.


    Only a few days left to comply with these deadlines:

    • October 15, 2011 is the last day that a calendar-year plan can be corrected by amendment and in operation to address failure of the minimum coverage requirements of Code Section 410(b) and the general nondiscrimination requirements of Code Section 401(a)(4) in 2010. Has your plan received these tests from the plan’s recordkeeper?
    • 2011 third-quarter contributions to defined benefit plans must be made by October 15, 2011.
    • Calendar-year defined benefit plans with 100 or more participants are required to submit online premium filings to the PBGC by October 17, 2011. Special rules apply for new plans and plans with changed plan years. Click here for instructions.
    • For calendar-year plans that filed for an extension through Form 5558 by August 1, 2011, the 2010 Form 5500 must be filed by October 17, 2011.
    • The due date for the Form 5500 of a direct filing entity, such as a master trust, is 9? months after the end of the DFE’s fiscal year. For a direct filing entity with a calendar fiscal year, the filing deadline for the 2010 Form 5500 is October 17, 2011.

    Other upcoming filing deadlines:

    Form 8955-SSA, which replaces the prior Form SSA, is generally due at the same time as Form 5500. However, the IRS has extended the due date for Form 8955-SSA for the 2009 and 2010 plan years to January 17, 2012 or the generally applicable due date for 2010, whichever is later. No further extensions will be available for the January 17, 2012 deadline.

    Most ERISA plans must furnish participants and beneficiaries with a Summary Annual Report, generally 9 months after the end of a plan year. For calendar year plans, the general deadline for the 2010 year was September 30, 2011. If a plan has an extended due date for its Form 5500, the deadline for the Summary Annual Report is 2 months after the extended due date. Click here for the Department of Labor’s fill-in-the-blank report. Defined benefit plans required to provide annual funding notices do not have to furnish Summary Annual Reports.


    A safe harbor 401(k) plan must provide an annual notice of the safe harbor rules to all eligible employees, whether or not they elect to participate, before the beginning of each plan year. Calendar-year plans may send these notices from now until December 1.

    Before the beginning of each plan year (generally no less than 30 days before the first day of the new plan year), 401(k) and 403(b) plans that have automatic contribution arrangements must provide participants with an annual notice that explains the default investments and the right to opt out of contributions. Calendar-year plans may send the notice now for the 2012 plan year. Click here for the IRS sample notice. If a plan has a Qualified Default Investment Alternative (“QDIA”), its annual QDIA notice can be sent at the same time.

    Qualified plans have been the target of substantial legislative and regulatory changes over the past 5 years. An updated summary plan description (“SPD”) must be distributed every 10 years or, if amendments are made in the interim, every 5 years. Is your qualified plan SPD up to date with these distribution requirements?


    For plan years beginning on or after September 23, 2011, a group health plan cannot have a maximum annual limit on essential health benefits that is less than $1,250,000. This applies to both “grandfathered” and “non-grandfathered” plans. If your plan imposed a limit in 2011, the plan may need to be amended to increase the limit to $1,250,000.

    For many employers with calendar-year welfare plans, fall marks the beginning of open enrollment season. Open enrollment provides a convenient opportunity to send updated Summary Plan Descriptions and required annual notices to group health plan participants. For a checklist, see our Client Alert, “Check it Out and Check it Off.”

    Employer group health plans that are not grandfathered under the 2010 health reform law must satisfy new disclosure requirements in their internal claims and appeal process. The first day of the first plan year beginning on or after July 1, 2011 is the compliance date for four of the new requirements: claim identification information, the reasons for any adverse determination, internal appeals and external review processes, and the name and contact information for the State health consumer assistance program or ombudsman, if available. The compliance date for other new requirements has been extended to plan years beginning on or after January 1, 2012, the prior 24-hour turn-around for urgent care claims has been eliminated for all plans and other requirements have been revised for all plans. Click here for more information.