As you probably already know, qualified retirement plans are permitted, but are not required, to allow participants who are age 50 or older to make additional elective deferrals (including designated Roth contributions), known as “catch-up” contributions.  For most plans, the catch-up contribution limit for 2023 is $7,500.

Last year, President Biden signed into law far-reaching retirement plan legislation known as SECURE 2.0 Act that included many new rules for employers and their qualified requirement plans.  One of the new rules, Section 603 of the SECURE 2.0 Act, specifically targets catch-up contributions.  This new rule generally provides that effective January 1, 2024, plan participants age 50 or older who earn more than $145,000 annually and who decide to make catch-up contributions must do so on a Roth basis, using after-tax money.

Although seemingly straightforward, this new rule creates administrative complexities that made its implementation difficult for plan sponsors.  For instance, employee benefit professionals recognized that in order to comply with the new rule, plan sponsors needed to quickly identify those participants age 50 or older who earned more than $145,000 the previous year and potentially adjust their payroll systems and plans.

IRS delays implementation deadline by two years

Just last Friday, the IRS released Notice 2023-62, “Guidance on Section 603 of the SECURE 2.0 Act with Respect to Catch-Up Contributions,” that provides welcome guidance on the new catch-up contribution rules.  Most importantly, the Notice grants a two-year delay in the provision’s effective date so catch-up contributions can now be made on a pre-tax basis through 2025, regardless of income.  This new transition period provides plan sponsors breathing room to implement the new catch-up contribution rules.

The Notice’s comment period runs through October 24, 2023, after which time the Treasury Department and the IRS intend to issue further guidance on Section 603 of the SECURE 2.0 Act.

McAfee & Taft’s Employee Benefits & Executive Compensation attorneys will continue to monitor for updates to SECURE 2.0 Act and consider their impact on plan sponsors and their plans.

In this economic environment, employers are doing almost anything to attract and retain a quality workforce. Improving the suite of employee benefit offerings, sometimes without incurring major new expenditures, is top of mind for many.

Enter SECURE 2.0, which includes a long-awaited 401(k) feature that has sparked employer interest for years.

What is it?

The new legislation lets employers treat an employee’s payments toward student loan debt as if they were 401(k) contributions. Employers are permitted to make “matching contributions” into the employee’s plan account even though the employee didn’t contribute anything to the plan. This is a discretionary feature and is not required.

Why would an employer consider adding this feature to its plan?

This could be a win-win for employees and employers. Employees are incentivized to pay down a potentially large student loan debt burden while simultaneously saving for retirement. Employees would not have to choose between paying down student loans and, on the other hand, making 401(k) deferrals in order to receive the match.

For employers, although it might mean making a matching contribution when it otherwise would not (for example, if an employee chose to make loan payments rather than elective deferrals), it would almost certainly be a unique benefit offering, and the matching contributions are deductible in the same manner as a traditional match.

Only “qualified student loan payments” count.

Matching contributions may only be made on account of a qualified student loan payment. That’s defined as a payment made by an employee in repayment of a qualified education loan incurred by the employee to pay qualified higher education expenses.

The amount of student loan payments that may be matched cannot be greater than the normal Code § 402(g) limit for the year (for 2023, that’s $22,500), reduced by any regular elective deferrals the employee makes during that plan year.

A qualified student loan payment generally must meet the requirements of Code § 221(d)(1). The loan must be incurred solely to pay qualified higher education expenses:

1. which are incurred on behalf of the taxpayer, or his spouse or dependent, as of the time the indebtedness was incurred,
2. which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and
3. which are attributable to education furnished during a period during which the recipient was an eligible student (which is a defined term).

It also includes loans to refinance loans that meet the above requirements. It does not include a loan from a relative or a loan from a retirement plan.

For verification, employers must have the employee certify, at least annually, that the employee’s loan payments were made to a qualifying loan.

What are “qualified higher education expenses?”

These are generally expenses related to enrollment or attendance at an eligible postsecondary school. Very generally, it includes (1) tuition and fees; (2) books, supplies, and equipment; and (3) room and board. Other related items can potentially be included as well, like computers and internet service, but the expenses are only qualified higher education expenses if the student is enrolled at least half-time.

Although the rules for determining “qualified student loan payments” and “qualified higher education expenses” seem complex, employers are permitted to rely on the employee certification that the loan meets these requirements. Employers would be wise to distribute information on these rules with the certification so employees can make an informed decision, but the requirements should be familiar since they are similar to those for the student loan interest deduction on employees’ personal tax returns.

As of right now, it appears that the employee certification is sufficient to protect the plan’s qualified status, but guidance from the IRS confirming that piece would be welcome.

Would this hurt the plan’s nondiscrimination testing?

No. Congress included special nondiscrimination testing rules to ensure student loan matches would not hurt testing. Plans are permitted to test separately the employees who receive a regular match from those who receive a student loan match. More guidance from the IRS on this piece would also be welcome.

Are there any other important things to know?

Here are a few:

• The matching contribution for student loan payments must be the same as for elective deferrals.
• Employees receiving the student loan match must otherwise be eligible to participate in the plan and receive a regular match.
• All employees eligible to receive a regular match must also be eligible to receive a student loan match.
• The student loan match must vest in the same manner as a regular match.
• After the effective date, this feature can be implemented into 401(k), 403(b), SIMPLE IRA, and 457(b) plans (including plans sponsored by governmental employers). However, existing plans will almost certainly need to be amended before implementation.

When can this be implemented?

This new feature can be effective for plan years beginning after December 31, 2023. For plans with a calendar year plan year, that means no sooner than January 1, 2024. The IRS will most likely promulgate regulations to tighten up these rules closer to the effective date (and hopefully before).

That’s a long time from now. What can we do now?

If 2024 is too long to wait, employers could consider implementing a student loan reimbursement program. Buried in the CARES Act from 2020, Congress expanded the rules for qualified education assistance programs. Those programs typically reimburse employees for these same types of education-related expenses, but Congress expanded the program to also permit reimbursements for student loan payments made before January 1, 2026. An employer’s reimbursement of student loan payments can be made to the employee on a tax-free basis up to $5,250 per year.

However, there are various requirements under Code § 127 that must be met before implementing a student loan reimbursement program. For example, employers should have a program document in place, and the design can be affected for employers that already have a qualified education assistance program in place.

While many were out last week finishing up their last-minute Christmas shopping, Congress passed the highly-anticipated retirement plan legislation known as “SECURE Act 2.0” and the U.S. Departments of Labor, Health and Human Services, and Treasury (the “Departments”) issued good-faith relief from the troublesome prescription-drug reporting that is otherwise due December 27, 2022.  There are too many provisions to cover comprehensively (SECURE Act 2.0, by itself, is hundreds of pages long), but the following provides a summary of various highlights.

New Retirement Plans Laws

SECURE Act 2.0 includes a number of new rules and opportunities for employers and their qualified retirement plans, including:

1. Increased Age for Required Minimum Distributions. The current age at which a qualified retirement plan must start forcing distributions for many participants is age 72.  For any individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, the new applicable age is 73.  For an individual who attains age 74 after December 31, 2032, the applicable age is 75.
2. Increased Catch-Up Contribution Limit for Ages 60-63. For 2022, participants who were at least 50 years old were able to save an additional $6,500 (on top of the $20,500 limit that applied to all participants).  This limit increases to $7,500 for 2023.  Starting with the 2025 tax year, SECURE Act 2.0 pushes the limit even further for individuals between the ages of 60-63 to the greater of (a) $10,000, or (b) 150% of the regular catch-up amount for 2024.
3. Catch-Up Contributions = Roth. For tax years after December 31, 2023, catch-up contributions (for those ages 50 or older) must be made on a Roth basis, except for an eligible participant whose wages for the preceding calendar year do not exceed $145,000 (indexed for inflation).
4. Student Loan Payments Outside Retirement Plan Can Be Matched Inside Retirement Plan. For plan years beginning after December 31, 2023, an employer may “match” a qualified student loan payment made by the employee outside the plan up to a certain limit.  The employee must certify that the payment on the loan was made.  The Secretary of the Treasury must permit employers to establish reasonable procedures for an employee to claim these matching contributions, including an annual deadline for an employee to make a claim.
5. Employers Can Give Small Gift Cards to Employees to Incentivize 401(k) Deferrals. Employers can give employees a de minimis financial incentive outside of the retirement plan (such as a gift card) to encourage employees to make 401(k) deferrals within the plan.
6. New Emergency 401(k) Distribution Feature. For plan years beginning after December 31, 2023, a retirement plan participant can take – generally, once every three years – a penalty-free distribution of up to $1,000 for emergency personal or family expenses.  This new emergency distribution can be repaid to the plan within three years.
7. Part-Time Workers Eligible Earlier. A qualified retirement plan must now generally allow a part-time employee to make 401(k) deferrals if they have completed 500 hours of service in two consecutive 12-month periods.
8. New Emergency Savings Accounts. A sponsor of a defined contribution retirement plan can include in its plan an emergency savings account for non-highly compensated employees, and can fund such accounts through automatic enrollment.  Contributions to these accounts are capped at $2,500 and must be funded after-tax with Roth contributions.  Participants must be allowed to withdraw funds at least once per calendar month.
9. New Retirement Savings Lost and Found. Within two years, the U.S. Department of Labor must establish an online searchable database to be known as the “Retirement Savings Lost and Found”.  This will allow an individual to search for information and locate the administrator of any plan for which the participant is or was a participant or beneficiary.
10. Increased Mandatory Distribution Limit. Currently a retirement plan sponsor can distribute a terminated participant’s account, without the participant’s consent, if their balance does not exceed $5,000.  SECURE Act 2.0 pushes this to $7,000.
11. New Distribution Available for Victims of Domestic Abuse. On or after January 1, 2024, a domestic abuse victim can take a qualifying distribution of up to the lesser of (a) $10,000; or (b) 50% of their vested plan account balance.  A distribution qualifies if it is made within the one-year period beginning when the individual is a victim of domestic abuse by a spouse or domestic partner.  Any such distributed amount may be repaid to the plan.
12. Matching & Nonelective Contributions Can Be Treated as Roth Contributions. A qualified retirement plan may allow employees to designate employer matching contributions or nonelective contribution as Roth contributions.
13. New 401(k) Plans Must Have Automatic Enrollment. A new retirement plan will not be treated as a qualified 401(k) plan unless the plan contains an “eligible automatic enrollment feature” that automatically enrolls participants at a 3% minimum deferral amount and then increases the automatic-deferral percentage by 1% each year thereafter (up to 10% for plan years ending before 2025 and 15% for plan years thereafter).  Existing retirement plans, governmental plans, and church plans are exempt from this requirement.
14. Changes to Saver’s Match. An eligible individual who makes qualified retirement savings contributions for a tax year will potentially qualify for a matching contribution that will be paid to the retirement plan by the federal government.  The amount of the matching contribution will be as much as 50% of elective deferrals that do not exceed $2,000.  The calculation is tricky and the amount of the potential match phases out based on income.
15. Indian Tribal Government Domestic Relations Orders. Under SECURE Act 2.0, a domestic relations order issued by an Indian tribal government may qualify as a “qualified domestic relations order” just like a domestic relations order of a State.

Please note that the applicability of these provisions may vary based on the type of qualified retirement plan, e.g., 401(a) plan, governmental plan, church plan, etc.  Also, please remember this is just a summary – there are numerous details regarding each of these new rules and opportunities.

Prescription Drug Reporting: Good-Faith Relief and Extended Grace Period

The Internal Revenue Code, the Employee Retirement Income Security Act of 1974, and the Public Health Service Act were all previously amended to require group health plans to report certain information related to prescription drugs and other health care expenditures.  This information includes, among other things, general information regarding the plan; the 50 most-frequently-dispensed brand prescription drugs; the 50 most-costly prescription drugs by total annual spending; and the 50 prescription drugs with the greatest increase in plan expenditures over the preceding plan year.

Under prior guidance, the deadline to report this information for the 2020 and 2021 reference years is December 27, 2022.  Last Friday, December 23, 2022, the Departments issued much-needed relief stating they will not take enforcement action with respect to any plan that uses a good faith, reasonable interpretation of the regulations and the Prescription Drug Data Collection (RxDC) Reporting Instructions in making its submission.  The Departments are also providing a submission grace period through January 31, 2023, and will not consider a plan to be out of compliance with these requirements provided that a good faith submission of 2020 and 2021 data is made on or before January 31, 2023.

The IRS finalized new rules that change eligibility requirements for the premium tax credit (PTC) created under the Affordable Care Act. It is now easier for an employee’s family members to enroll in subsidized health insurance through an exchange. Related guidance creates a new mid-year cafeteria plan election change event to help family members move to subsidized exchange coverage. 

Background

The PTC was created to subsidize health insurance obtained through an exchange. Generally, household income must be between 100-400% of the federal poverty line to qualify for a PTC. But, if an employee is eligible for a workplace health plan that offers “affordable” self-only coverage and provides minimum value, no family members are eligible for a PTC. Coverage is affordable if the employee premium for self-only coverage does not exceed 9.12% of household income in 2023. 

Put simply, the cost of family coverage is not considered to determine whether a workplace health plan is affordable. If the cost of employee-only coverage is affordable, the entire family is ineligible for a PTC. Industry insiders informally termed this the “family glitch.” 

New Regulations

Now, solely for purposes of claiming the PTC, if the employee cost for family coverage is not affordable, the employee may claim a PTC to subsidize insurance obtained through an exchange for family members.

This change only affects a family’s eligibility for the PTC – the rules for assessing an employer shared responsibility payment (ESRP) did not change. ESRP liability continues to be measured solely against the cost of self-only coverage. Premiums for family coverage may exceed the affordability threshold without risking ESRP exposure. 

These rules are effective for tax years beginning after December 31, 2022. 

Cafeteria Plan Change

Generally, employers must have a cafeteria plan to permit employees to pay premiums on a pre-tax basis. Cafeteria plans also dictate when employees may make mid-year election changes. Now, non-calendar year cafeteria plans may permit family members to drop coverage mid-year and enroll in exchange coverage. This change is optional. 

Note that many cafeteria plans permit all election changes that are permitted by law, which means the cafeteria plan might automatically permit this new mid-year election change when it becomes effective. Employers should review their plan to ensure it will be operated consistent with its terms. 

The new cafeteria plan rules are effective as of January 1, 2023.

On Friday, June 24, 2022, the U.S. Supreme Court issued its decision in Dobbs v. Jackson Women’s Health Organization, and overruled Roe v. Wade and Planned Parenthood of Southeastern Pa. v. Casey.  In doing so, the Court held that the U.S. Constitution “does not prohibit the citizens of each State from regulating or prohibiting abortion.”

While abortions remain legal in a number of states (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington and Wisconsin), as many as 26 states are expected to ban or limit access to abortions now or in the future.

Oklahoma, for example, generally makes it a felony for a physician to administer or assist with an abortion.  21 Okla. Stat. § 861.  Oklahoma also recently enacted the Oklahoma Heartbeat Act (“OHA”), which establishes a private civil cause of action as follows:  “Any person, other than the state, its political subdivisions, and any officer or employee of a state or local governmental entity in this state, may bring a civil action against any person who . . . Knowingly engages in conduct that aids or abets the performance or inducement of an abortion including paying for or reimbursing the costs of an abortion through insurance or otherwise . . . . “  63 Okla. Stat. § 1-745.39(A)(2) (emphasis added).

As applied to employers and their self-funded group health plans, laws like the OHA create very difficult questions, including:

• Can an employer’s self-funded group health plan pay for an employee to get an abortion in another state that permits abortions – or is the employer and/or its plan administrator subject to criminal and/or civil actions by doing so?
• Can an employer or its self-funded group health plan pay for an employee to travel to another state that permits abortions – or is the employer and/or its plan administrator subject to criminal and/or civil actions by doing so?
• Should abortion-related travel benefits be provided through an employer’s existing self-funded group health plan, or can they be provided separately?
• Can abortion-related travel expenses be provided through an employee-assistance program (EAP) without making the EAP a group health plan?
• If an employer provides travel benefits so that an employee can get an abortion in another state, must the employer also provide travel benefits for non-abortion-related medical procedures or mental health conditions?
• Are there dollar limits on the amount that an employer can pay for abortion-related travel expenses?

I. Employer Liability Under State Law?

Suppose that an employer with a self-funded group health plan has employees in Oklahoma and California.  Suppose that Oklahoma prohibits the provision of abortion benefits to any plan members.  Also suppose that California mandates that a benefit plan must provide abortion benefits to all of its members.  If the employer’s group health plan provides abortion benefits, it may arguably be violating the laws of Oklahoma.  If it does not provide abortion benefits, it may be violating the laws of California.  If the plan does not permit abortion benefits, but it nevertheless provides them to a California employee, then plan assets are being wasted in violation of the terms of the plan.  If the plan pays for abortion benefits for California employees but not for Oklahoma employees, then plan members are being treated differently, perhaps in violation of federal regulations.  See 29 C.F.R. § 2560.503-1(b)(5) (requiring that “the plan provisions [must be] applied consistently with respect to similarly situated claimants”).

Congress sought to avoid these kinds of problems by eliminating state regulation in this field, and by instead “establishing [federal] standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.”  29 U.S.C. § 1001(b)  This goal is effectuated in various provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).

A. ERISA Preemption of State Laws, Generally

ERISA relieves plan fiduciaries from the aforementioned quandaries by generally preempting state law.  29 U.S.C. § 1144.  Federal preemption is a concept rooted in Article VI, Clause 2 of the U.S. Constitution (the Supremacy Clause), which states that “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof [i.e., ERISA] … shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, anything in the Constitution or Laws of any State to the Contrary notwithstanding.”

In keeping with this, ERISA states that “the provisions of this subchapter and subchapter III [of ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan….”  29 U.S.C. § 1144(a).  ERISA defines “The term ‘State law’ [to include] all laws, decisions, rules, regulations, or other State action having the effect of law, of any State.”  ERISA thus preempts not only state statutory law, but also state regulations, executive and administrative action, etc. if the state law “relates to” an ERISA-regulated plan.  The Supreme Court held long ago that ERISA preempts state lawsuits involving plan benefits.  See Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 67 (1987) (“Accordingly, this suit, though it purports to raise only state law claims, is necessarily federal in character [under ERISA] by virtue of the clearly manifested intent of Congress. It, therefore, ‘arise[s] under the . . . laws . . . of the United States,’ 28 U.S.C. § 1331, and is removable to federal court by the defendants, 28 U.S.C. § 1441(b), emphasis added); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 57 (1987) (“we conclude that [plaintiff’s] state law suit asserting improper processing of a claim for benefits under an ERISA-regulated plan is not saved by [29 U.S.C. § 1144(b)(2)(A)], and therefore is preempted by [29 U.S.C. § 1144(a)], emphasis added).

States cannot “capture” self-funded ERISA plans and subject them to state regulation.  ERISA states that:

Neither an employee benefit plan described in section 1003(a) of this title …, nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, … or to be engaged in the business of insurance … for purposes of any law of any State purporting to regulate insurance companies, insurance contracts….

29 U.S.C. § 1144(b)(2)(A).  The Supreme Court explained the impact of this provision (known as the “deemer clause”) as follows:

We read the deemer clause to exempt self-funded ERISA plans from state laws that “regulat[e] insurance” within the meaning of the saving clause. By forbidding States to deem employee benefit plans “to be an insurance company or other insurer . . . or to be engaged in the business of insurance,” the deemer clause relieves plans from state laws “purporting to regulate insurance.” As a result, self-funded ERISA plans are exempt from state regulation insofar as that regulation “relate[s] to” the plans.  State laws directed toward the plans are preempted because they relate to an employee benefit plan but are not “saved” because they do not regulate insurance. State laws that directly regulate insurance are “saved” but do not reach self-funded employee benefit plans because the plans may not be deemed to be insurance companies, other insurers, or engaged in the business of insurance for purposes of such state laws. On the other hand, employee benefit plans that are insured are subject to indirect state insurance regulation. An insurance company that insures a plan remains an insurer for purposes of state laws “purporting to regulate insurance” after application of the deemer clause. The insurance company is therefore not relieved from state insurance regulation. The ERISA plan is consequently bound by state insurance regulations insofar as they apply to the plan’s insurer.

FMC Corp. v. Holliday, 498 U.S. 52, 62 (1990) (emphasis added).

The Supreme Court’s recent decision in Rutledge v. Pharm. Care Mgt. Ass’n explains that laws having a coercive effect on ERISA plans are preempted:

ERISA is therefore primarily concerned with preempting laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits … or by binding plan administrators to specific rules for determining beneficiary status ….  A state law may also be subject to preemption if “acute, albeit indirect, economic effects of the state law force an ERISA plan to adopt a certain scheme of substantive coverage.”  … As a shorthand for these considerations, this Court asks whether a state law “governs a central matter of plan administration or interferes with nationally uniform plan administration.” Ibid. (internal quotation marks and ellipsis omitted). If it does, it is preempted.

141 S. Ct. 474, 480 (2020) (emphasis added).

B. ERISA Preemption of State Abortion Laws?

ERISA preemption is not without limits.  There are significant and very relevant exceptions.  For example, ERISA does not preempt “any generally applicable criminal law of a State.”  29 U.S.C. § 1144(b)(4).  Thus, any criminal law that does not specifically target benefit plans, but is instead “generally applicable,” is not preempted by ERISA.

As mentioned above, ERISA also does not preempt state laws that “regulate insurance.”  A state might, for example, be able to require an insurance company to include or not include certain provisions in its insurance policies, including group health insurance policies that fund ERISA-regulated plans (so-called “fully-insured plans”).  But a state cannot similarly regulate the terms and content of a self-funded plan.  Self-funded ERISA plans have the broadest possible protection under ERISA preemption.

The problem with the varying state abortion laws (the ones that exist now and the ones that are sure to be enacted in the future) and ERISA preemption is that even if a state law should be preempted by ERISA, it may take years and multiple layers of courts to definitively determine that a law is preempted.  So, the answer to the question at the beginning of this article  — namely, “Can an employer or plan administrator be subject to criminal or civil actions for paying for an abortion or related travel expenses?” – may be yes, at least until a court says otherwise.

Based on what we know about ERISA preemption, if a state has a law making it a crime for anyone to pay for or reimburse the costs of an abortion, it would be very difficult to argue that ERISA preempts said law as applied to self-funded ERISA plans because the law is generally applicable to everyone – and not just ERISA plan administrators.

On the other hand, laws like the OHA – which provide for a civil cause of action against anyone who pays for or reimburses the costs of an abortion – are likely preempted by ERISA as it relates to ERISA self-funded group health plans.  Thus, it is likely permissible for an ERISA self-funded group health plan to (a) pay for an employee to receive an abortion in a state where it is legal; and/or (b) pay for travel-related expenses to said state.  But states and private litigants may disagree, and ERISA plan administrators and fiduciaries might have to spend time and money litigating about these issues.  And courts may ultimately disagree also.  ERISA preemption does not appear to be getting stronger.  Courts and legislative bodies are using Rutledge (holding an Arkansas state PBM law was not preempted) to essentially argue that ERISA does not preempt anything.  All that to say, even if there are good ERISA preemption arguments, it is risky to ignore state laws.

It is important to keep in mind the obvious:  a plan cannot pay for medical care that is not covered by the plan.  So, if you are an ERISA plan administrator or other fiduciary and you want to provide coverage for abortion expenses and/or abortion-related travel expenses, take a look at your plan document to see what it says.  If your plan does not currently provide this coverage, you cannot provide the coverage – unless the settlor of the plan amends the plan document.  If your plan document is silent but you want to make it clear that your plan pays for an abortion (in a state where it is legal) or related travel expenses, then you should have the settlor of the plan amend your plan document.

II. Beyond ERISA Preemption Issues:  Other Compliance Challenges

There are numerous issues and considerations beyond the state law issues described above – far too many for this article.  But here are some quick thoughts regarding other related issues:

1. Amending existing health plan may be the best option. If an employer wants to provide coverage for (a) abortion expenses in a state where it is legal; and/or (b) abortion-related travel expenses (e.g., transportation) to another state where it is legal, the likely best way to do that will be to amend the employer’s existing self-funded health plan.  Including these benefits in the employer’s existing self-funded plan will give the hopeful protection of ERISA preemption described above, and it will likely prevent the employer from needing to create a separate stand-alone HIPAA policy, COBRA notice packet, etc. – because the existing plan should already have those in place.
2. Amending existing health plan = only participating employees.  If an employer amends their existing group health plan to provide coverage for abortion-related travel expenses, they cannot provide these benefits for all employees, i.e., only those employees who are eligible and participating in the current plan may receive these benefits.  If an employer pays benefits from the plan for non-participating employees, the employer will violate the exclusive benefit rule and breach their fiduciary duties.
3. Amending existing health plan = Mental health parity challenges.  You may recall that the Mental Health Parity rules generally require mental health and substance use disorder benefits to have parity with the plan’s medical surgical benefits.  If an employer’s plan provides coverage for abortion-related travel expenses, but does not provide coverage for mental-health-related travel expenses, the employer may accidentally bust the Mental Health Parity rules.  Thus, it may be best to provide a certain level of travel-related expenses for any covered services (e.g., outside of a certain geographic area) without specifying that they are only for abortion-related travel expenses.  This may also minimize the risk of having the travel-expense benefit challenged under state law because it could theoretically be used for any covered benefit. News media outlets are reporting, for example, that Target will have such a broad travel reimbursement policy, which is reported to include travel for mental health, cardiac care, and other services that are not available near employees’ homes.
4. Creating a stand-alone plan with only travel benefits likely busts multiple ACA rules. If an employer creates a new stand-alone benefit plan to pay travel benefits on a tax-favored basis, separate from their existing health plan, and if it provides nothing other than travel benefits, it would likely be deemed to violate certain provisions of the Affordable Care Act.  For this reason, it is likely better to add these benefits to the existing, robust group health plan. Even if these benefits are provided on an after-tax basis, this likely still creates these issues.
5. Employers might be able to create an excepted benefit EAP.  Notwithstanding the comments above, it might be possible to create a stand-alone employee assistance plan (EAP) to pay for travel expenses.  This would allow the employer to provide travel expenses to all employees (not just those covered by the existing self-funded plan).  But there are also risks with this approach – namely, whether providing these benefits would provide significant medical care, based on existing DOL guidance, and trigger all of the normal ERISA-plan obligations.  This could depend on whether the employer currently offer an EAP and, if so, what kinds of benefits are currently offered under the EAP.
6. Talk to the PBM.  An employer should talk to the pharmacy benefit manager (PBM) for their plan and find out what abortion-related drugs participants have access to, especially through mail order – and especially if they have employees in states that make an abortion illegal.
7. Multi-state employers: state laws.  If an employer has employees in multiple states, the employer should be sure to know and understand the state laws in all of the states in which they have employees.
8. City and local ordinances.  There are various cities and municipalities that have either already passed local laws regarding abortion (e.g., Lebanon, Ohio) or are considering them.  We understand there are more than 45 cities that currently have such laws.  Employers will need to be mindful of these local laws and will need to think through any preemption issues.
9. Tax considerations.  There are limits on the amount of travel benefits that can be provided either under an existing group health plan or separately (through one of the structures mentioned above) on a tax-free basis.  An employer will need to be sure to understand those limits and work with their administrator and/or payroll team to ensure compliance.  Certain expenses cannot generally be paid on a tax-free basis, such as meals.

For assistance in navigating these complex legal issues, please contact your McAfee & Taft Employee Benefits attorney.

The No Surprises Act (NSA) became effective on January 1, 2022.  It prohibits surprise billing in certain circumstances.  Surprise billing occurs when a patient receives an unexpected bill, often for a large amount, from an out of network (OON) provider without having a prior opportunity to select the provider.  The patient’s health plan typically does not cover the full amount of the OON charges and the provider “balance bills” the patient for the outstanding amount. The NSA targets common circumstances where surprise billing occurs, including charges for emergency services furnished by an OON provider or facility, air ambulance services furnished by an OON provider of air ambulance services, or nonemergency services furnished by an OON provider at an in-network facility.

Under the NSA the patient is effectively cut out of the billing dispute—the patient only pays the in-network cost sharing amounts, and the plan must pay under either an state All-Payer Model Agreement or other specified state law.  If there is no such Model Agreement or state law, which will often be the case, the following process applies:

Step 1. The plan must send an Initial Payment or Notice of Denial of Payment within 30 calendar days of receipt of a clean claim covered by the NSA.

Step 2. An open negotiation period must be initiated within 30 business days beginning on the day the OON provider receives either an initial payment or a notice of denial of payment.  The open notice period begins on the day on which the open negotiation notice is first sent by a party.  Care should be taken to ensure that the notice complies with specified requirements.

Step 3.  The parties must exhaust the open negotiation period.  Upon exhausting the open negotiation period, and if open negotiation is unsuccessful, either party may request resolution under the Federal Independent Dispute Resolution (IDR) process whereby a certified independent dispute resolution entity will review the case and determine the final payment amount.  The Notice of IDR Initiation must be sent to the other party and to the Departments within 4 business days after the close of the open negotiation period.  The notice must be submitted to the Departments through the Federal IDR portal at https://www.nsa-idr.cms.gov.  The Notice must contain specific information including the initiating party’s preferred certified IDR entity. The non-initiating party can accept the initiating party’s preferred certified IDR entity or object and propose another certified IDR entity.

Step 4.  The non-initiating party has 3 business days to object (including conflict of interest concerns) and propose another certified IDR entity.  If the non-initiating party fails to object it will be deemed to have accepted the initiating party’s preferred certified IDR entity.

Step 5.  Within 4 business days after the date of initiation of the Federal IDR Process the initiating party must notify the Departments that the parties have agreed on a certified IDR entity, or that the Departments should randomly select a certified IDR entity. Within this period the non-initiating party must notify the Departments if it contends the Federal IDR Process is not applicable. The Departments will supply this information to the selected certified IDR entity, who must determine whether the Federal IDR Process is applicable.  The IDR timeframes will continue to apply while the applicability issue is under review.  If the selected IDR entity cannot participate the Departments will notify the parties, and they will have 3 business days to select another certified IDR entity, or, if the parties indicated that they cannot agree on a certified IDR entity, the Departments will randomly select another certified IDR entity. The NSA allows for multiple qualified claims to be considered as part of a single IDR determination (batching) when the claims involve the same provider(s), plans, items, and services, and were incurred in the same 30/90-day period.

Step 6.  If necessary, the Departments will make a random selection of a certified IDR entity within 6 business days after IDR initiation. The certified IDR entity may invoice the parties for administrative fees at the time of selection.  These fees are estimated by the Departments to be $400 on average, and within the range of $200-$500, or $268-$670 for batched claims.

Step 7.  Within 3 business days of selection, the certified IDR entity must submit an attestation that it does not have a conflict of interest and a determination that the Federal IDR Process is applicable.

Step 8.  Within 10 business days after selection of the certified IDR entity each party must submit its offer (the amount it contends should be paid to satisfy the claim) and pay the certified IDR entity fee (which will be held in a trust or escrow account by the certified IDR entity), and the administrative fee which is a separate paid to the Departments.  An offer will not be considered received by the certified IDR entity until the certified IDR entity fee and the administrative fee have been paid.  The offer must include both a dollar amount and a percentage of the QPA (which is the median of the contracted rates recognized by the plan for the same or similar item or service that is provided by a provider in the same or similar specialty and provided in the same geographic region).  Different QPAs should be provided if applicable for batched claims. If a party fails to make a timely or complete offer the certified IDR entity will select the other party’s offer as the final payment amount.

Step 9.  Within 30 business days after the date of its selection the certified IDR entity must determine the payment amount (the parties may continue to negotiate up to the time the certified IDR entity makes its determination, in which case the initiating party has 3 business days to notify the entity and the departments of the agreement).  The certified IDR entity must select one of the offers submitted and notify the parties and the Departments of its decision.  The certified IDR entity must consider “credible” information submitted by the parties which relate to the offers, and which are not prohibited (usual and customary rates, billed charges, and Medicare rates).  Additional information (different for air ambulance and non-air ambulance items and services) may be considered such as training, experience, quality of outcomes, market share, acuity of the patient, teaching status, case mix, scope of services, and good faith effort by the provider to enter into network arrangements.

Step 10.  Any amount due from one party to the other party must be paid within 30 calendar days after the determination by the certified IDR entity. The certified IDR entity must refund the prevailing party’s certified IDR entity fee paid within 30 business days after the determination. The certified IDR entity’s decision is binding upon the parties unless there is fraud or evidence of intentional misrepresentation of material facts to the certified IDR entity.

Here are some other general rules related to the IDR process:

Cooling off period.  The party that initiated the Federal IDR Process may not submit a subsequent Notice of IDR Initiation involving the same other party with respect to a claim for the same or similar item or service that was the subject of the initial Notice of IDR Initiation during the 90-calendar-day suspension period following the determination.

Extensions.  May be made for good cause in extenuating circumstances (such as natural disasters).  Payment periods cannot be extended.

Recordkeeping and Reporting.  Certified IDR entities must maintain records of all claims and notices associated with the Federal IDR Process with respect to any payment determination for 6 years. Certified IDR entities must report certain data within 30 business days of the close of each month through the Federal IDR portal.  The reporting must be done to maintain certification.

Confidentiality.  Certified IDR entities must maintain confidentiality and security regarding individually identifiable health information (IIHI) and must report any breaches of confidentiality.

Revocation of Certification.  The Departments may revoke the certification of a certified IDR entity if the entity demonstrates incompetence or failure to comply with the Federal IDR Process.

Resources (including links to model notices and forms).

• For Disputing Parties: https://www.cms.gov/files/document/federal-independent-dispute-resolution-guidance-disputing-parties.pdf
• For Certified IDR Entities: https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Federal-Independent-Dispute-Resolution-Process-Guidance-for-Certified-IDR-Entities.pdf
• Federal IDR Portal https://www.cms.gov/nosurprises
• Calendar Year 2022 Fee Guidance for the Federal Independent Dispute Resolution Process Under No Surprises (Download Fee Information) (PDF) https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Technical-Guidance-CY2022-Fee-Guidance-Federal-Independent-Dispute-Resolution-Process-NSA.pdf
• Where to go for help CMS.Gov/NoSurprises https://www.cms.gov/nosurprises/Policies-and-Resources/Overview-of-rules-fact-sheets
• No Surprises Help Desk: 1-800-985-3059.

This is a supplement to our January 16, 2022 post on the new requirements related to health plans providing free over-the-counter COVID tests.

Last Friday (February 4), the DOL issued additional guidance on this topic, which confirms that a direct to consumer shipping program is required (if a health plan wants to be able to limit reimbursement for OON to $12, as we described in our January 16 post) and also provides a few new wrinkles:

• At Least One Direct to Consumer Shipping Mechanism Generally Required.  “Q1: Do plans and issuers have flexibility in how they establish a direct-to-consumer shipping program and direct coverage through an in-person network in order to qualify for the safe harbor established in FAQs Part 51, Q2?  Yes. In response to questions raised by stakeholders, the Departments are revising the requirements of the safe harbor established in FAQs Part 51, Q2 to ensure that plans and issuers have significant flexibility in how they provide access to OTC COVID-19 tests under those requirements. In order to meet the requirements of the safe harbor, plans and issuers must provide direct coverage by ensuring participants, beneficiaries, and enrollees have adequate access to OTC COVID-19 tests with no upfront out-of-pocket expenditure. For this purpose, whether a plan or issuer provides adequate access through its direct coverage program will depend on the facts and circumstances, but will generally require that OTC COVID-19 tests are made available through at least one direct-to-consumer shipping mechanism and at least one in-person mechanism. [The Departments recognize that there may be some limited circumstances in which a direct coverage program could provide adequate access, and therefore satisfy the requirements of the safe harbor, without establishing both a direct-to-consumer shipping mechanism and an in-person mechanism. For example, if a small employer’s plan covers only employees who live and work in a localized area, it could be possible that distribution at a nearby location constitutes adequate access to OTC COVID-19 tests without establishing a direct-to-consumer shipping mechanism.]  “Direct coverage” may be provided through a number of mechanisms, including, but not limited to, a direct-to-consumer shipping program that allows for orders to be placed online or by telephone; the plan’s or issuer’s pharmacy network; other non-pharmacy retailers (including through distribution of coupons for enrollees to receive tests from certain retailers without cost-sharing); and alternative OTC COVID-19 test distribution sites established by, or on behalf of, the plan or issuer (such as a standalone drive-through or walk-up distribution site, including a site that operates independently of a pharmacy or other retailer).”

M&T Commentary:  To the extent that clients are not yet able to provide the direct to consumer shipping program, the bracketed language above – and the “number of mechanisms” language – is what we are going to rely on – on a very temporary basis – to say that we are complying with the safe harbor until the direct to consumer shipping program is up and running.  It is not crystal clear that this works but many other employers and PBMs are working hard to get the direct to consumer shipping program up and running since this guidance was issued so recently.  The example provided above for a “limited circumstance” involving a “small employer” whose employees “live and work in a localized area” without a consumer shipping mechanism available, cannot be used by larger employers to somehow try to bypass the direct to consumer shipping requirement.

• Plan Participants Must Be Made Aware of Key Information.  In order to facilitate consumer access and provide for a seamless experience in obtaining OTC COVID-19 tests with no upfront out-of-pocket expenditure, plans and issuers should ensure that participants, beneficiaries, and enrollees are aware of key information needed to access OTC COVID-19 testing, such as which tests are available under the direct coverage program, and if the plan or issuer offers different mechanisms for obtaining tests under its direct coverage program, which tests are available under each mechanism.
• Direct to Consumer Shipping Mechanism Can Take Different Shapes As Long As Individual Can Order and Get at Home.  This FAQ clarifies that a direct-to-consumer shipping mechanism is any program that provides direct coverage of OTC COVID-19 tests for participants, beneficiaries, or enrollees without requiring the individual to obtain the test at an in-person location. A direct-to-consumer shipping mechanism can include online or telephone ordering and may be provided through a pharmacy or other retailer, the plan or issuer directly, or any other entity on behalf of the plan or issuer. A direct-to-consumer shipping program does not have to provide exclusive access through one entity, as long as it allows a participant, beneficiary, or enrollee to place an order for OTC COVID-19 tests to be shipped to them directly. For example, if a plan or issuer has opted to provide direct in-person coverage of OTC COVID-19 tests through specified retailers, and those retailers maintain online platforms where individuals can also order tests to be delivered to them, the Departments will consider the plan or issuer to have provided a direct-to-consumer shipping mechanism.
• Plan Must Pay Shipping Costs.  When providing OTC COVID-19 tests through a direct-to-consumer shipping program, plans and issuers must cover reasonable shipping costs related to covered OTC COVID-19 tests in a manner consistent with other items or products provided by the plan or issuer via mail order.
• In Person Mechanism Must Provide Adequate Number of Locations.  When implementing an in-person mechanism, a plan or issuer must ensure that participants, beneficiaries, or enrollees have access to OTC COVID-19 tests through an adequate number of locations (which could include pharmacies and other retailers, or independent distribution sites set up by, or on behalf of, a plan or issuer). As the Departments noted in FAQs Part 51, Q2, whether there is adequate access should be determined based on all relevant facts and circumstances, such as the locality of participants, beneficiaries, or enrollees under the plan or coverage; current utilization of the plan’s or issuer’s pharmacy network by its participants, beneficiaries, or enrollees, when making such coverage available through a pharmacy network; and how the plan or issuer notifies participants, beneficiaries, or enrollees of the retail locations, distribution sites, or other mechanisms for distributing tests, as well as which tests are available under the direct coverage program.
• Tests Must Be Used and Processed Without Involvement of a Lab or Other Health Care Provider.  To the extent a COVID-19 test is not approved or authorized to be self-administered and self-read without the involvement of a health care provider (such as a test where a consumer collects a specimen at home and sends the specimen to be processed in a laboratory), the safe harbor guidance is not applicable.
• Temporary Supply Shortage Will Not Destroy Ability to Rely on the Safe Harbor (i.e., the $12 OON cap).  The Departments will not consider a plan or issuer to be out of compliance with the safe harbor in FAQ Part 51, Q2 if it has established a direct coverage program that meets the requirements of that safe harbor as revised by Q1 of these FAQs Part 52 but is temporarily unable to provide adequate access through the program due to a supply shortage. In that circumstance, a plan or issuer that otherwise meets the requirements of the safe harbor may continue to limit reimbursement to $12 per test (or the full cost of the test, whichever is lower) for OTC COVID-19 tests purchased outside of the direct coverage program.
• Plan May Disallow Reimbursement for Tests Obtained from a Private Individual.  In order to further discourage problematic behaviors that could limit access to consumers, a plan or issuer may establish a policy that limits coverage of OTC COVID-19 tests purchased without the involvement of a health care provider to tests purchased from established retailers that would typically be expected to sell OTC COVID-19 tests. Specifically, plans and issuers may disallow reimbursement for tests that are purchased by a participant, beneficiary, or enrollee from a private individual via an in-person or online person-to-person sale, or from a seller that uses an online auction or resale marketplace. Such a policy could include requiring reasonable documentation of proof of purchase that clearly identifies the product and seller, such as a UPC code or other serial number, original receipt from the seller of the test, or other documentation for the OTC COVID-19 test to verify that the item qualifies for coverage under section 6001 of FFCRA, or a requirement that the participant, beneficiary, or enrollee attest that the test has not been (and will not be) reimbursed by another source (including through resale). If a plan or issuer implements a policy that disallows reimbursement for OTC COVID-19 tests from certain resellers, the plan or issuer should provide information to participants, beneficiaries, or enrollees regarding the retailers from which purchased tests are generally covered by the plan or issuer and general information about the types of resellers for which participants, beneficiaries, and enrollees are not eligible for reimbursement of purchased tests under the plan or coverage. This does not modify the requirement of FAQs Part 51, Q4 that prohibits a plan or issuer from requiring individuals to submit multiple documents or implementing numerous steps that unduly delay a participant’s, beneficiary’s, or enrollee’s access to, or reimbursement for, OTC COVID-19 tests.

Last week, on January 24, the United States Supreme Court issued its much-anticipated decision in Hughes v. Northwestern University (“Hughes”), unanimously holding that retirement plan fiduciaries have a duty to continuously monitor retirement plan investment options and to remove all imprudent ones.  In its opinion, the Supreme Court made it clear that if there are imprudent investment options in a retirement plan (such as a 401(k) plan), plan fiduciaries cannot ignore them just because there are other prudent investment options.

Northwestern University offers two defined contribution retirement plans for its eligible employees.  Like many other similar plans, the plans’ fiduciaries select the investment options from which participating employees can choose to invest their retirement plan savings.  The plaintiffs in Hughes allege that the Northwestern University plan fiduciaries breached their duty of prudence under the Employee Retirement Income Security Act of 1974 (“ERISA”) by: (1) failing to monitor and control the fees paid by the plans for recordkeeping, resulting in unreasonably high costs to plan participants; (2) offering a number of mutual funds and annuities in the form of “retail” share classes that carried higher fees than those charged by identical “institutional” share classes; and (3) offering too many investment options (over 400) and thereby causing participants to be confused and make poor investment decisions.

The lower court (U.S. Court of Appeals for the Seventh Circuit) had dismissed the plaintiffs’ allegations because the court determined that the Northwestern University fiduciaries had provided an adequate array of choices, including the types of low-cost funds the plaintiffs wanted.  In the lower court’s view, the fact that participants could have chosen lower-cost funds destroyed any claim that the defendants had breached their fiduciary duty by leaving imprudent options in the plans.  In effect, the lower court determined that it did not matter that there were “bad” investment options in the plans’ investment menu – because there were also “good” ones that participants could have chosen during the relevant time.

In its decision, the Supreme Court unanimously rejected this participant-choice rationale – and made it crystal clear that ERISA requires plan fiduciaries to continuously monitor all plan investments and to remove any imprudent ones.

While the Supreme Court’s decision in Hughes is important, the Court did not address the arguably more-important issue that many in the employee benefits community had been hoping the Court would address:  What does a plaintiff in an ERISA excessive fee case have to plead in their complaint to survive a motion to dismiss?  In the past week, since the Hughes decision was issued, commentators are all over the place guessing about what the Court’s decision means for this important question.  Some commentators think the Hughes decision will make it more difficult for plaintiffs to bring these types of lawsuits.  Other commentators think the opposite.  Unfortunately, the opportunity has passed, for now, for the Court to resolve this question and lower courts will continue to struggle with it.

The Families First Coronavirus Response Act (FFCRA) was enacted on March 18, 2020, and generally requires group health plans to provide benefits for certain items and services related to COVID-19 testing when those items or services are furnished on or after March 18, 2020 and during the applicable emergency period.  Plans must provide this coverage without imposing any cost-sharing requirements (including deductibles, copayments, and coinsurance), prior authorization, or medical management requirements.

Less than 10 days later, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) amended the FFCRA to include a broader range of diagnostic items and services that plans must cover without any cost-sharing requirements, prior authorizations, or other medical management requirements.

Then, in June 2020, the Departments of Labor, Health and Human Services, and the Treasury (collectively, the Departments) issued guidance stating that plans are required to cover COVID-19 tests intended for at-home testing, when the testing is ordered by an attending health care provider who has determined that the test is medically appropriate.  The Departments noted, at that time, that the Food and Drug Administration (FDA) had not yet authorized any COVID-19 diagnostic tests to be completely used and processed at home.  Since that time, however, the FDA has authorized additional diagnostic tests for COVID-19, including tests that can be self-administered and self-read at home.  These COVID-19 tests are now available over-the-counter (if you can find them) through pharmacies, retail stores, and online retailers (OTC Tests).

Last week, on January 10, 2022, the Departments issued updated guidance stating that the requirement for health plans to cover free OTC Tests is no longer limited to situations in which the individual has an order from a health care provider.  This updated guidance provides the following details:

1. Free OTC Tests must be provided on or after January 15, 2022 through the end of the public health emergency.
2. Plans are still not required to provide coverage for COVID-19 tests (including OTC Tests) that are for employment purposes (e.g., testing required under an employer return-to-work policy), as opposed to tests for diagnosis or treatment of COVID-19. Please note, however, that the employer may nonetheless be required to pay for such testing under applicable state law.
3. A plan cannot limit coverage to OTC Tests that are provided through preferred pharmacies. A plan may, however, arrange for direct coverage of OTC Tests through its pharmacy network and a direct-to-consumer shipping program, and then otherwise limit reimbursement outside of the plan’s arrangement to $12 per test.  This reference to a “direct” arrangement means the participant (which, for this article, includes beneficiaries and other enrollees) is not required to seek post-purchase reimbursement, i.e., the plan must pay the pharmacy or retailer directly with no up-front cost to the participant.  While many plans are looking to set up such an arrangement and direct employees to get their OTC Tests through a preferred network provider (after negotiating a discounted rate from the provider), there is some concern among employers that such an arrangement will result in increased volume and thus increased costs.
4. If a plan sets up the direct arrangement described above and then only pays $12 for OTC Tests that are obtained outside of the direct arrangement, the $12 per test must be calculated based on the number of tests in a package.
5. If a plan sets up the direct arrangement described above, plans cannot impose any prior authorization or other medical management requirements on participants, and must take reasonable steps to ensure that participants have adequate access to OTC Tests through an adequate number of retail locations (including both in-person and online).
6. If a plan sets up the direct arrangement described above, plans must ensure that participants are aware of key information needed to access OTC Tests, such as dates of availability of the direct coverage program and participating retailers or other locations.
7. Plans can limit the number of OTC Tests covered for each participant, beneficiary, or enrollee to 8 tests per 30-day period or per-calendar month. Please note for example, that if a family has six members covered by the plan, this means the plan must pay for 48 OTC Tests per month.  For employers with a significant workforce, the financial projections – even assuming some actuarial reductions for likely usage – are staggering.
8. A plan can require an attestation, such as a signature on a brief attestation document, that the OTC Test (a) was purchased by the participant for personal use, not for employment purposes; (b) has not been (and will not be) reimbursed by another source; and (c) is not for resale.

Ten years ago, the United States Department of Labor (“DOL”) published a final regulation under the Employee Retirement Income Security Act of 1974 (“ERISA”), which required retirement plan service providers to disclose information about the service provider’s compensation and potential conflicts of interest. Under that regulation, covered service providers to retirement plans are required to disclose: (a) the services they provide to the retirement plan; (b) all “direct compensation” (i.e., directly from the plan) the service provider, its affiliate or a subcontractor reasonably expects to receive in connection with their services; (c) all “indirect” compensation (generally, compensation from some source other than the plan or the plan sponsor) the service provider, its affiliate, or a subcontractor reasonably expects to receive; (d) any related-parties compensation that will be paid among the service provider, an affiliate, or a subcontractor that is set on a commissions, soft-dollar, finder’s-fee, or other similar basis; and (e) certain other information.

Largely as a result of this regulation, retirement plan fiduciaries know (or should know) exactly who is getting paid, how much, and why for services provided to their retirement plans. There are (or should be) no secrets. This allows retirement plan fiduciaries to have a very clear understanding of any potential conflicts of interest.

Unfortunately, because of the absence of similar rules, this has not always been the case for health plan fiduciaries. On the health plan side, the rules have not required the same level of disclosure and thus health plan fiduciaries have not always had the same level of insight into every type and amount of compensation that their service providers may be receiving. For example, some brokers or consultants might have previously received undisclosed “book of business” or “5500” bonuses, based on the overall volume of business that they have placed with a certain provider – without any clear requirement to disclose such compensation to their employer clients.  Thus, many health plan fiduciaries have not able to assess all potential conflicts of interest.

Because of new rules that became effective December 27, 2021, the health plan side of the business is changing. The Consolidated Appropriations Act, 2021 (the CAA), amended ERISA effective December 27, 2021 to require certain service providers to group health plans to disclose specified information to a responsible plan fiduciary about the direct – and indirect – compensation that the service provider expects to receive in connection with services to the plan. The new disclosure requirements apply to persons who provide “brokerage services” or “consulting” to ERISA-covered group health plans who expect to receive $1,000 or more in direct or indirect compensation. The disclosures are intended to provide plan fiduciaries with sufficient information to assess the reasonableness of the compensation to be received (before it is received) and any potential conflicts of interest.

About 10 days ago, the DOL issued Field Assistance Bulletin 2021-03 (“New FAB”) to clarify some important aspects of the new CAA requirement:

1. Look to Retirement Plan Rules. The disclosure requirements for health plans are not identical to the requirements for retirement plans, but the New FAB provides that health plan fiduciaries can look to the retirement plan regulation and its requirements when evaluating what kind of information to expect and request from their health plan brokers and consultants.  Thus, health plan fiduciaries should ask their service providers to disclose the same level of detailed information that is required of retirement plan service providers.
2. Insured and Self-Funded. The new health plan disclosure requirements apply to fully-insured and self-funded group health plans.
3. Applies to Limited Scope Dental and Vision. The new disclosure requirements apply to limited scope dental and vision plans – not just group health plans.
4. Not Just Licensed “Brokers” or “Consultants.” The new disclosure requirements apply to providers of “brokerage services” and “consulting” services. The FAB makes it clear that just because a service provider does not call itself a “consultant” or charge a “consulting” fee does not determine whether they have to comply with the new disclosure requirements. The DOL expects reasonable and good faith efforts. Service providers who reasonably expect to receive indirect compensation from third parties in connection with advice, recommendations, or referrals for any of the listed services, should comply with the new disclosure requirements and not try to label themselves as something other than a broker or consultant merely to avoid the rules.
5. December 27, 2021. The new requirements apply to contracts entered into, renewed, or extended on or after December 27, 2021.

These new disclosure requirements should bring more transparency to the health plan side of employee benefits and allow plan fiduciaries to know and understand all the ways, direct and indirect, that everyone is getting paid. This will allow fiduciaries to identify and assess conflicts of interest.