Monthly Benefits Update - April 2013
May 1, 2013
Health & Welfare Plans
Health Care Reform: Guidance on Required Future Modifications to SBC, Other Issues
The Internal Revenue Service (IRS), Department of Labor (DOL), and Department of Health and Human Services (HHS) issued new guidance on information which must be included in future Summaries of Benefits and Coverage (SBC) issued for health plans. For coverage years beginning on or after January 1, 2014, the SBC must include language regarding whether a plan or coverage provides minimum essential coverage and whether the plan’s share of total allowed costs meets minimum value requirements. Current SBCs issued in 2013 do not include (and are not required to include) this additional language. It is important to note that this is the only change made by the IRS, DOL, and HHS to the SBC template. Therefore, otherwise compliant SBCs will only require this minor revision for 2014. If a plan sponsor is unable to modify the SBC for 2014 in this manner, the Departments noted that the plan sponsor would be permitted to issue a cover letter or similar disclosure with the SBC which contains the required information on minimum essential coverage and minimum value.
The agencies also released an additional FAQ on various issues under the Affordable Care Act, including annual limit waivers, provider non-discrimination rules, coverage of approved clinical trials, and transparency in coverage reporting requirements. The agencies noted that they do not expect to issue regulations on coverage of clinical trials in the near future, and non-grandfathered group health plans (which must implement coverage of clinical trials in plan years beginning on or after January 1, 2014) may rely on a good faith, reasonable interpretation of the law.
Health Care Reform: Guidance for Employers Contributing to Multiemployer Welfare Plans
A number of employer and business groups continue to request relief on various aspects of the pay or play mandate, which is set to take effect in 2014. Thankfully, the IRS issued a technical correction to its pay or play rules on March 15 which provides much-needed relief to employers who contribute to multiemployer welfare plans. Under pay or play rules, employers must offer coverage to at least 95% of their full-time employees, or they will be required to pay a substantial tax. In its technical correction, the IRS stated that employers will effectively “offer” coverage to employees as long as they are required by a collective bargaining agreement to make contributions for such employees to a multiemployer welfare fund which provides coverage that is affordable, provides minimum value, and provides coverage to those individuals’ dependents. We expect that the vast majority of multiemployer welfare plans will provide minimum value. Employers should ensure that the level of employee contributions, if any, to a multiemployer welfare plan satisfy the affordability criteria set forth in regulations.
Health Care Reform: Guidance for Individuals Seeking Health Insurance Premium Tax Credit
Beginning in 2014, eligible individuals who purchase coverage under a qualified health plan through an Affordable Insurance Exchange may receive a premium tax credit under section 36B of the Internal Revenue Code. Individuals generally may not receive a premium tax credit if they are eligible for affordable coverage under an eligible employer-sponsored plan that provides “minimum value.” The IRS issued regulations on April 30 providing guidance to individuals on how to determine whether a particular group health plan provides minimum value and whether it is affordable. Importantly, the guidance also discusses how wellness incentives may affect the affordability or minimum value measurement of a particular group health plan.
Subrogation and Reimbursement
United States Supreme Court Decision: US Airways Inc. v. McCutchen
Most group health plans state that if a plan pays benefits to a participant who has suffered from an injury caused by a third party, the plan may seek reimbursement from the participant if the participant later recovers money from the third party. However, the participant will likely incur attorneys’ fees in pursuing a monetary recovery from the third party. In US Airways, the Supreme Court considered the question of whether and when the plan’s ultimate recovery from the participant should be reduced by the amount the participant paid in attorneys’ fees. The Supreme Court noted that the plan’s terms are key, and that equitable defenses cannot override plan terms if the plan provides a right to reimbursement. Therefore, the plan was entitled to at least some recovery from the participant. However, US Airways’ plan was silent as to the allocation of attorneys’ fees. Therefore, the Supreme Court permitted the participant to use the “common fund doctrine” as a defense to providing full reimbursement to the plan. Under the common fund doctrine, a lawyer who recovers a sum of money (or “fund”) for the benefit of others beyond his client (such as a benefit plan) is entitled to reasonable attorney’s fees from the fund as a whole. Therefore, where the plan is silent, the doctrine will allow plan participants to reduce their total reimbursement to the plan based on a portion of their attorneys’ fees.
Obama Administration Revenue Proposals Affecting Retirement Savings
The Obama Administration announced its intent to push for several significant measures which will affect retirement plans and the benefits that are payable under those plans. The administration’s 2014 budget plan proposes to set a limit of approximately $3 million on accumulated retirement savings under IRAs, 401(k) plans, 403(b) plans, and 457(b) plans. The $3 million cap is tied to the approximate maximum payments that an individual who retires at age 62 could receive under a defined benefit plan under current law (currently, defined benefit plans may not pay an annual benefit in excess of $205,000). The proposed limitation would be determined at the end of a calendar year, and would apply to contributions or accruals for the following calendar year. If the individual reached the maximum permitted accumulation, no further contributions or accruals would be permitted, but the individual’s account balance could continue to grow with investment earnings. In addition, the administration proposed to require automatic payroll deduction IRAs, for businesses that have more than 10 employees and have been in business for at least two years. Contributions to IRAs would be made on a payroll-deduction basis. If the employer sponsored a retirement plan, it would not be required to provide this automatic IRA option. In response to these proposals, opposition has been strong and well-publicized.
PBGC Proposed Rule on Reportable Events
Under ERISA, pension plans and plan sponsors are required to report to the Pension Benefit Guaranty Corporation (PBGC) a range of corporate and plan events. In 2009, the PBGC proposed to increase reporting requirements by eliminating many reporting waivers. The PBGC received a significant number of objections to the proposed rule, saying that the elimination of these waivers would require reports where the actual risk to plans and the PBGC is minimal. The PBGC ultimately agreed with this position. The PBGC’s new proposed rule exempts plans and sponsors from reporting events that would not likely put the plans at risk, and targets reporting requirements to the minority of companies and plans that are at substantial risk of default. The PBGC also indicated at an April 2013 enrolled actuaries meeting that they are continuing to fine-tune guidance under 4062(e) of ERISA, which requires reporting and potential liability for companies that cease operations at a facility that results in a 20% reduction in active plan participants. Companies that are financially sound will not be required to provide financial assurance, and the PBGC will focus 4062(e) measures on companies that are at higher risk of default. The PBGC’s reasonable position on reporting events and 4062(e) will no doubt be a relief to many plan sponsors.
As always, please let us know if you have any questions on these items or any other recent developments.