New IRS Guidance Provides Even More Flexibility for Cafeteria Plans, FSAs, and DCAPs

You might recall that in December 2020, Congress passed the year-end funding bill known as the Consolidated Appropriations Act, 2021 (“CAA”), which contained provisions that provide significant flexibility for flexible spending accounts (“FSAs”) and dependent care assistance plans (“DCAPs”) in 2020 and 2021.  Last week, on February 18, 2021, the IRS released Notice 2021-15 to clarify certain aspects of the CAA and to provide even more flexibility than that provided in the CAA.  Here is a brief overview of both the CAA and Notice 2021-15:

CAA:

  1. 2020 FSA/DCAP CARRY OVER. For plan years ending in 2020, FSAs and/or DCAPs can allow participants to carryover any unused benefits for contributions remaining from 2020 in to the 2021 plan year.
  2. 2021 FSA/DCAP CARRY OVER. For plan years ending in 2021, FSAs and/or DCAPs can allow participants to carry over any unused benefits or contributions remaining from 2021 into the 2022 plan year.
  3. EXTENDED FSA/DCAP GRACE PERIOD. Employers can extend the FSA or DCAP grace period for the plan years ending in 2020 and/or 2021 to 12 months after the end of the year, with respect to unused benefits/contributions remaining at the end of the year. (This extends the permissible period for incurring claims.)
  4. POST-TERMINATION FSA REIMBURSEMENTS. Employers can allow an employee who ceases participation in the plan during calendar year 2020 or 2021 to continue to receive reimbursements from unused benefits or contributions through the end of the plan year when participation ceased (including any grace period).
  5. SPECIAL DCAP CARRY FORWARD. Typically, expenses may only be reimbursed under a DCAP for a qualifying child who has not attained age 13. Instead of the normal age 13 age limit, the CAA pushes the age limit to age 14 – during the plan year where the end of the regular enrollment period was on or before January 31, 2020 (i.e., enrollment period for 2020 plan year would have been in 2019). AND if there was an unused balance at the end of 2020, age 14 can be used in the 2021 plan year.
  6. PROSPECTIVE MODIFICATION FOR 2021 PLAN YEAR. For the plan year ending in 2021, an FSA or DCAP can allow an employee to make an election to prospectively modify the amount of employee contributions to the arrangement without regard to any change in status.
  7. PLAN AMENDMENT REQUIREMENT. A plan amendment must be adopted by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective (i.e., if amendment is effective 12/31/20, must adopt an amendment by 12/31/21).

  IRS Notice 2021-15

 IRS Notice 2021-15 restates and clarifies certain aspects of the CAA, and it also provides additional flexibility.  The following outlines most, but not all, of the Notice 2021-15 guidance.

  1. NEW CAFETERIA PLAN FLEXIBILITY. In addition to the CAA changes, this notice provides additional relief for mid-year elections for plan years ending in 2021.  Thus, a plan can allow employees to:
    • NEW ELECTION. Make a new election on a prospective basis, if the employee initially declined to elect coverage.
    • REVOKE ELECITON AND MAKE NEW ELECTION. Revoke an existing election and make a new election to enroll in different coverage prospectively.
    • REVOKE ELECTION IF OTHER COVERAGE. Revoke an existing election on a prospective basis if attest in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.  Employer must get attestation.
  2. CAN LIMIT FSA/DCAP CARRYOVER. For the carryover authorized by the CAA (described above), an employer may limit the carryover to an amount less than all unused amounts and may limit the carryover to apply only up to a specified date during the plan year.
  3. EVEN IF HISTORICALLY NO CARRY OVER OR GRACE PERIOD. Even if the plan does not typically allow a carry over or have a grace period, it can be amended to add them, per the discussion above.
  4. IMPACTS HSA ELIGIBLITY. The Internal Revenue Code allows eligible individuals to establish and contribute to health savings accounts (“HSAs”).  To be an eligible individual, the individual must (among other requirements) not be covered under any health plan that is not a high-deductible health plan (“HDHP”).  Notice 2021-15 clarifies that the carryover of unused amounts to the 2021 plan year or the 2022 plan year is an extension of coverage by a plan that is not a HDHP. Thus, an individual cannot make HSA contributions during a month in which the individual participates in a general purpose FSA to which unused amounts are carried over.
  5. CAN ALLOW EMPLOYEES TO OPT OUT OF CARRYOVER. Employers may amend their plans to allow employees, on an individual basis, to opt out of the carryover or grace period to preserve HSA eligibility.
  6. CAN LIMIT GRACE PERIOD. Employer can adopt an extended grace period for incurring claims that is less than 12 months and may choose to adopt a period that ends before the last day of the plan year.
  7. CAN LIMIT POST-TERMINATION AMOUNT. For reimbursements that can occur post-termination (see #4 above under CAA discussion), the employer can limit the reimbursement available to only those salary reduction contributions made from the beginning of the plan year to the date the employee ceased to be a participant.
  8. GRACE PERIOD AND POST-TERMINATION. An employer that adopts the extended grace period may also allow employees who ceased participation earlier in the year (see #4 above under CAA discussion) to further extend the period for incurring claims, e.g., John terminated employment in 2020 and his employer extends the grace period for 2020 to the end of 2021 – which would allow John to also incur claims through the end of the extend grace period. But if the employer instead adopted the carryover (and not the extended grace period), John could not take advantage of the carryover.
  9. NORMAL RULES APPLY FOR CARRYOVERS AND GRACE PERIODS IN 2022 OR LATER. After 2022, the normal rules apply for carryovers and grace periods, e.g., the most that an employee may carryover from the 2022 plan year to 2023 is $550.

More Details on Transparency Rules That Apply in 2022 and Beyond

On December 6, 2020, we posted an article on this blog titled “RADICAL New Transparency Rules Likely Apply to Your Health Plan in One Year.”  The regulations are a little more than 150 pdf pages long.  The following is intended to provide a condensed but more comprehensive summary of the requirements described in our December 6, 2020 article.

A. January 1, 2022 – Three Files Disclosed

  • For plan years beginning on or after January 1, 2022
  • Applies to Non-Grandfathered Health Plans
  • Public Disclosure
  • In-Network Provider Rates for Covered Items and Services
  • Out-of-Network Allowed Amounts
  • Billed Charges for Covered Items and Services
  • Negotiated Rates and Historical Net Prices for Covered Prescription Drugs
  • Must Be Made Available on an Internet Website
  • Three Machine-Readable Files – Standardized Format & Updated Monthly
  • Date Most Recently Updated Clearly Indicated
  • Accessible to Any Person Free of Charge
  • No Conditions – Cannot Require Establishing of User Account, Password, or Other Credentials, or Submission of Personally-Identifiable Information to Access the File
  1. File #1 (in-network providers): The first file must show the negotiated rates for all covered items and services between the plan and in-network providers, except prescription drugs (see File #3 below). The file must include: (a) For each coverage option offered, the name and 14-digit Health Insurance Oversight System (HIOS), or, if the 14-digit HIOS identifier is not available, the 5-digit HIOS identifier, or if no HIOS identifier is available, the Employer Identification Number (EIN); (b) A billing code, in the case of prescription drugs must be an NDC (National Drug Code), and a plain language description for each billing code for each covered item or service under each coverage option offered by the plan; and (c) All applicable rates, which may include one or more of the following (1) Negotiated rates, (2) Underlying fee schedule rates, or (3) Derived amounts
  1. File #2 (out-of-network providers): The second file must disclose the historical payments to, and billed charges from, out-of-network providers. The file must include: (a) For each coverage option offered, the name and the 14-digit HIOS identifier, or, if the 14-digit HIOS identifier is not available, the 5-digit HIOS identifier, or, if no HIOS identifier is available, the EIN; (b) A billing code, for prescription drugs an NDC, and a plain language description for each billing code for each covered item or service under each coverage option offered by a plan or issuer; and (c) Unique out-of-network allowed amounts and billed charges with respect to covered items or services, furnished by out-of-network providers during the 90-day time period that begins 180 days prior to the publication date of the machine-readable file, except a plan or issuer must omit such data in relation to a particular item or service and provider when compliance with this bullet would require the plan or issuer to report payment of out-of-network allowed amounts in connection with fewer than 20 different claims for payments under a single plan or coverage.
  1. File #3 (prescriptions): The third file must disclose the in-network negotiated rates and historical net prices for all covered prescription drugs. This file must include: (a) For each coverage option offered, the name and the 14-digit HIOS identifier, or, if the 14-digit HIOS identifier is not available, the 5-digit HIOS identifier, or, if no HIOS identifier is available, the EIN; (b) The NDC and the proprietary and non-proprietary name assigned to the NDC by the Food and Drug Administration (FDA) for each covered item or service that is a prescription drug under each coverage option offered by a plan or issuer; (c) The negotiated rates which must be: (1) Reflected as a dollar amount, with respect to each NDC that is furnished by an in-network provider, including an in-network pharmacy or other prescription drug dispenser; (2) Associated with the NPI, TIN, and Place of Service Code for each in-network provider, including each in-network pharmacy or other prescription drug dispenser; and (3) Associated with the last date of the contract term for each provider-specific negotiated rate that applies to each NDC; and (4) Historical net prices.

B.  January 1, 2023 – Online Shopping Tool For 500 items (and January 1, 2024 for ALL covered items and services)

  • For plan years beginning on or after January 1, 2023 (for the identified 500 items and services) (these have already been identified in the regulations)
  • For plan years beginning on or after January 1, 2024 (for all covered items and services)
  • Establishes Price Transparency Requirements
  • Applies to Non-Grandfathered Health Plans
  • Does Not Apply to HRAs or Other Account-Based Group Health Plans
  • Does Not Apply to Short-Term, Limited-Duration Insurance
  • Intended to Give Consumers Real-Time and Accurate Estimates of Their Cost-Sharing Liability
  • Must Be Available in Plain Language
  • Cannot Require Subscription or Other Fee
  • Must Be Available Through a Self-Service Tool on an Internet Website
  • Must Provide Real-Time Responses Based on Accurate Cost-Sharing Information
  1. Required Disclosures to Participants and Beneficiaries. At the request of a participant or beneficiary who is enrolled in a group health plan, the plan must provide certain information in a certain format:
  • Required Cost-Sharing Information:
    • Estimate. An estimate of the participant’s or beneficiary’s cost-sharing liability for a requested covered item or service by a provider(s) that is calculated based on the information required in the paragraphs that follow below:
      • Accumulated Amounts
      • In-Network Rate – comprised of the following:
        1. Negotiated rate, reflected as a dollar amount, for in-network providers, even if it is not the rate the plan uses to calculate cost-sharing liability
        2. Underlying fee schedule rate, reflected as a dollar amount, to the extent it is different from the negotiated rate
      • Out-of-Network Allowed Amount – or any other rate that provides a more accurate estimate of an amount the group health plan will pay for the requested covered item or service, reflected as a dollar amount if the item or service is provided by an out-of-network provider, however in circumstances that a plan reimburses an out-of-network provider a percentage of the billed charge, the out-of-network allowed amount will be that percentage.
      • Bundled Arrangements – if a request is made for an item or service subject to a bundled payment arrangement, a list of the items or services included in the bundled payment arrangement for which cost-sharing information is being disclosed.
      • Subject to a Prerequisite – if applicable, notification that coverage of a specific item or service is subject to a prerequisite.
      • Notice in Plain Language – a notice that includes the following, in plain language:
        1. A statement that out-of-network providers may bill for the difference between a provider’s billed charges and the sum of the amount collected from the plan and from the participant in the form of a copayment or coinsurance amount (difference is balance billing) and the cost-sharing provided does not account for these potential additional amounts. This statement is only required if balance billing is permitted under state law;
        2. A statement that the actual charges for a covered item or service may be different from an estimate of cost-sharing liability provided, depending on the actual items or services received at the point of care;
        3. A statement that the estimate of cost-sharing liability for a covered item or service is not a guarantee that benefits will be provided;
        4. A statement disclosing whether the plan counts copayment assistance and other third-party payments in the calculation of the participant’s or beneficiary’s deductible and out-of-pocket maximum;
        5. For items and services that are recommended preventive services under 2713 of the PHS Act, a statement that an in-network item or service may not be subject to cost-sharing if it is billed as a preventive service if the plan or issuer cannot determine whether the request is for preventive or non-preventive; and
        6. Any additional information, including other disclaimers, that the plan determines is appropriate, provided the additional information does not conflict with the information required here.
  • Required Methods and Formats for Disclosure.
    • Internet-Based Self-Service Tool. Information disclosed per the requirements above must be made available in plain language, without subscription or other fee, through a self-service tool on an internet website that provides real-time responses based on cost-sharing information that is accurate at the time of the request. Plans must ensure that the self-service tool allows users to:
      • Search for cost-sharing information for an item or service provided by a specific in-network provider or by all in-network providers by inputting:
        • A billing code (such as CPT code 87804) or descriptive term (such as “rapid flu test”), at the option of the user;
        • The name of the in-network provider, if seeking information to a specific provider; and
        • Other factors utilized by the plan that are relevant for determining the applicable cost-sharing information, such as location of service, facility name, or dosage.
      • Search for an out-of-network allowed amount, percentage of billed charges, or other rate that provides a reasonably accurate estimate of the amount a plan will pay for a covered item or service provided by out-of-network providers by inputting:
        • A billing code or descriptive term, at the option of the user; and
        • Other factors utilized by the plan that are relevant for determining the applicable out-of-network allowed amount of other rate, such as the location a covered item or service will be sought or provided.
      • Refine and reorder search results based on geographic proximity of in-network providers, and the amount of the participant’s or beneficiary’s estimated cost-sharing liability for the covered items or services, to the extent the search returns multiple results.
    • Paper Method. Information disclosed per the requirements above must also be made available in plain language, without a fee, in paper form at the request of the participant or beneficiary. In responding to the request, the plan may limit the number of providers with respect to which cost-sharing information for covered items or services is provided to no fewer than 20 providers per request. The plan is required to:
      • Disclose the applicable provider-per-request limit to the participant or beneficiary;
      • Provide the cost-sharing information in paper form pursuant to the individual’s request;
      • Mail the cost-sharing information in paper form no later than two business days after a request is received;
      • If request is for other than paper, (for example, by phone or email), the plan may provide the disclosure through another means, provided the participant or beneficiary agrees and is fulfilled at least as rapidly as required for the paper method
    • Special Rule to Prevent Unnecessary duplication. A plan may satisfy the requirements by entering into a written agreement in which another party, such as a pharmacy benefit manager or other third party, provides the information required. Notwithstanding the preceding sentence, if a plan chooses to enter into such an agreement and the party with which it contracts fails to provide the information, the plan violates the transparency disclosure requirements.

Another ERISA stock-drop plaintiff meets icy reception by the courts

Much like our frigid weather, the courts continue their chilly reception of ERISA stock-drop claims.   Just earlier this month in Varga v. Gen. Elec. Co., No. 20-1144-cv, 2021 WL 391602 (2nd Cir. February 4, 2021), the U.S. Court of Appeals for the Second Circuit affirmed a lower court’s dismissal of an ERISA lawsuit for breach of fiduciary duty.

In Varga, the plaintiff was a GE employee who participated in the GE 401(k) plan that offered a GE Stock Fund as one of the plan’s investment options.  The plaintiff sued GE and its CEO alleging that the defendants breached their ERISA fiduciary duty of prudence by continuing to offer the GE Stock Fund when GE improperly inflated the value of the stock for years by failing to publicly disclose a significant mistake.  And, once GE released this news to the public, the GE stock price dropped which adversely impacted plan participants.

The Varga court rejected the claim reasoning that the plaintiff failed to satisfy the tough pleading standards for a breach of ERISA’s duty of prudence claim set forth by the U.S. Supreme Court in Dudenhoeffer v. Fifth Third Bankcorp, 573 U.S. 409 (2014): “whether a plaintiff has plausibly alleged an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund that to help it.”   The Varga court concluded that “Varga failed to adequately plead alternative actions that the fiduciaries could have taken.”  Or, in other words, what else was GE or its CEO supposed to do?

The take-away for benefits professionals is that post-Dudenhoeffer decisions have consistently found that claims based on the nondisclosure of insider information about the employer rarely survive the pleading stage.  We will continue to monitor ERISA stock-drop cases and keep you updated with any new developments.

 

 

New MHPAEA Requirements Effective February 10, 2021

The Consolidated Appropriations Act, 2021 (“CAA”), which is the spending bill passed by Congress on December 27, 2020, imposed new requirements on group health plans to ensure compliance with the Mental Health Parity and Addiction Equity Act of 2008’s (“MHPAEA”).  Generally, the purpose of the MHPAEA is to prevent group health plans and health insurance issuers that provide mental health or substance use disorder (“MH/SUD”) benefits from applying financial requirements or treatment limitations to MH/SUD benefits that are more restrictive than those that apply to medical/surgical benefits.

The new requirements added by the CAA focuses on nonquantitative treatment limitations (“NQTL”). NQTLs are items like prior authorization, step therapy, medical necessity reviews, or other limitations or conditions that are not tied to a number.  The current rules allow participants to request information about the processes, strategies, evidentiary standards, and other factors used to apply a NQTL to MH/SUD benefits as compared to medical/surgical benefits.  The CAA added additional requirements effective February 10, 2021, including the following:

  1. health plans and health insurance issuers that impose NQTLs on MH/SUD benefits are required to perform and document a comparative analysis demonstrating that the processes, strategies, evidentiary standards and other factors used to apply the NQTLs to MH/SUD benefits, as written and in operation, are comparable to, and applied no more stringently than, the processes, strategies, evidentiary standards, and other factors used to apply the NQTLs to medical/surgical benefits; and
  2. upon request, health plans and health insurance issuers must make this comparative analysis available to state insurance regulators and/or the Secretary of Labor, the Secretary of Health and Human Services and/or the Secretary of the Treasury (the “Secretaries”) along with other information described in the CAA.

The CAA also requires the Secretaries to request at least 20 such analyses per year from health plans and health insurances issuers.  If the comparative analysis is found to be non-compliant, the health plan or health insurance issuers must specify the actions it will take to come into compliance and must provide a new, compliant analysis within 45 days.  If the new analysis is still determined to be non-compliant, the health insurance plan or health insurance issuer must inform all enrolled individuals of the non-compliance.

The Secretaries have 18 months to issue joint guidance and regulations on these new MHPAEA requirements; however, health plans and health insurance issuers should be prepared at any point after February 10, 2021 to submit this information.  Accordingly, plan sponsors should work closely with their insurance carriers or third-party administrators to document compliance with MHPAEA’s NQTL requirements and ensure they are prepared to respond to a request for the NQTL comparative analyses.

Last Week’s Government Funding Bill = Significant New Benefit Plan Rules

On December 27, 2020, the Consolidated Appropriations Act, 2021 (the “Act”) was signed into law.  The Act imposes significant new requirements on employee benefit plans.  Coupled with other rules and legal developments already set to go into effect, the Act will create significant compliance obligations for employers and their benefit plans.[1]

Here is a summary of some, but not all, of the new requirements.

Health & Welfare Plans

  1. 2021 – New Flexibility for FSAs. Under the Act, employers have new flexibility related to their flexible spending accounts, including the option to allow:
    • FSA Carryovers. Any unused funds for 2020 or 2021 may be carried over to the next plan year.
    • FSA Extended Grace Period. For FSAs that have a grace period, the grace period can be extended for up to 12 months (instead of 2.5 months).
    • Terminated Employees. If an employee terminates participation in the FSA in 2020 or 2021, the plan may reimburse expenses through the end of that year (plus any grace period).
    • Change in Status. For plan years ending in 2021, employees may make any prospective changes in their FSA contributions without regard to a change in status.
  2. 2021 – Group Health Plans Cannot Agree to Gag Clauses. The Act requires health plans to ensure they have access to certain cost and quality-of-care information.  Plans may not agree to restrictions in contracts (e.g., network contracts) that would prevent them from accessing cost and quality of care information and providing that information to participants.  This includes provider-specific cost and quality-of-care data.
  3. 2021 – Mental Health – Nonquantitative Treatment Limitations. Beginning next month, group health plans that provide mental health or substance use disorder benefits that impose non-quantitative treatment limitations on such benefits are required to perform and document comparative analysis of the design and application of these limitations, and make these available to the DOL, HHS, or IRS upon request.
  4. 2022 – Broker and Consultant Disclosure of Compensation. The Act imposes significant new fee disclosure requirements on health brokers and consultants.  For many years now retirement plan service providers have been required to disclose every source of direct and indirect compensation, while the health plan industry has in many ways been the wild west.  The Act imposes new disclosure requirements on health plan brokers and consultants, which should give employers better information to ensure no conflicts of interest.
  5. 2022 – Pharmacy Benefit and Drug Cost Reporting. Group health plans will be required to annually report certain information related to prescription drugs to the secretaries of HHS, DOL, and Treasury.  For example, plans will be required to report the top 50 brand prescription drugs paid for by the plan and the total number of paid claims for each such drug.  Initially, the report will be required within one year of December 27, 2020, but then it will be required each year by June 1.
  6. 2022 – Identification Card Cost-Sharing Disclosure. For plan years beginning January 1, 2022, plans must include certain information on any  identification card issued to participants and beneficiaries, including any deductible or out-of-pocket maximum.
  7. 2022 – “No Surprises Act” = New Surprise Billing Rules. For plan years beginning January 1, 2022, the Act imposes significant new surprise-billing requirements that apply to group health plans, including self-funded plans.  Surprise billing often occurs when the patient (a) receives care from an out-of-network provider at an in-network facility; or (b) receives care at an out-of-network facility, such as in an emergency.
    • Emergency Services. In emergency situations, the Act is generally intended to ensure that patients (i) have the same cost-sharing responsibility for services, regardless of whether the provider is in-network; and (ii) receive credit towards any applicable in-network deductible or out-of-pocket maximums for these payments.  Under the Act, if a group health plan covers any benefits with respect to services in an emergency department of a hospital or emergency services in an independent freestanding emergency department, the plan must cover the emergency services:
      1. without the need for prior authorization;
      2. regardless of whether the provider is a participating provider or a participating emergency facility; and
      3. if the services are provided by an out-of-network provider or facility, (a) the services will be provided without any extra prior-authorization requirements, (b) the cost-sharing requirement cannot be greater than the requirement that would apply if the services were provided by a participating provider or facility, (c) the cost-sharing requirement is calculated as if the total amount had been charged by a participating provider or facility, (d) initial payment must be made within 30 days after receiving the bill, and then total payment must be made within certain timing rules, (e) any cost-sharing payments made by the participant must be counted toward any in-network deductible or out-of-pocket maximums, in the same manner as if they were made for services furnished by an in-network provider.
    • Non-Emergency Situations. In non-emergency situations, the facility or provider will have to (i) give the patient a detailed notice and an estimate of charges, generally 72 hours prior to the patient receiving out-of-network services; and (ii) obtain the patient’s consent to receive out-of-network care.  Without this notice and consent, the patient can only be held liable for their in-network cost-sharing amount.
      • Health Plan Disclosure. It appears that plans that receive the provider’s estimate will then have to quickly give the participant a notice with certain information including a good-faith estimate of how much the plan will pay.
    • Air Ambulance Surprise Billing. Surprise billing requirements that are similar to those described above will apply to air ambulance providers.

Retirement Plans

  • Partial Plan Termination Relief. Generally, if the sponsor of a retirement plan terminates 20% of plan participants during a plan year, the plan must 100% vest all affected participants.  The Act provides that a plan will not be treated as having a partial plan termination during any plan year that includes the period beginning March 13, 2020 and ending March 31, 2021, if the number of active participants in the plan covered on March 31, 2021 is at least 80% of the number on March 13, 2020.  Thus, if an employer terminated part of its workforce in 2020 but its business rebounded and the employer rehired participants, such employer’s plan will not have had a partial plan termination.

[1]             The Act is 5,593 pdf pages of new rules, most of which were signed into law on December 27, 2020 (approximately one week ago).  This summary was put together quickly to give us a roadmap of the new requirements and may need to be later corrected or adjusted.

IRS PROVIDES GUIDANCE ON SECURE ACT PROVISIONS AFFECTING CERTAIN SAFE HARBOR PLANS

On December 9, 2020, the IRS issued Notice 2020-86 addressing certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) affecting certain safe harbor plans. This notice provides guidance in the form of questions and answers with respect to Sections 102 and 103 of the SECURE Act, and it is intended to assist employers while the Treasury Department and IRS develop regulations to fully implement these provisions. Below is a high-level overview of Sections 102 and 103 of the SECURE Act and some of highlights of the guidance included in Notice 2020-86.

Section 102 of the SECURE Act generally increases the maximum automatic elective deferral percentage under an automatic enrollment safe harbor plan from 10% to 15%. With respect to Section 102, this Notice includes the following guidance:

  • A qualified automatic contribution arrangement (QACA) safe harbor 401(k) plan is not required to increase the maximum elective deferral percentage provided under the plan in order to maintain its qualified plan status.
  • A plan that incorporates by reference the maximum elective deferral percentage under the Internal Revenue Code may needed to be amended to provide an explicit maximum percentage, if the employer does not intend to use the new 15% maximum. The amendment deadline is generally December 31, 2022 for non-governmental plans, and December 31, 2024 for governmental or collectively bargained plans.

Section 103 of SECURE Act eliminates certain safe harbor notice requirements for plans that provide safe harbor nonelective contributions and adds new provisions for the retroactive adoption of safe harbor status for those plans. With respect to Section 103, this Notice includes the following guidance:

  • The SECURE Act did not alter the notice requirements for plans that use safe harbor matching contributions.
  • To retain the ability to reduce or suspend safe harbor nonelective contributions during the plan year, a plan must still satisfy the requirements outlined in the Treasury regulations, include providing some type of notice to employees.
  • An amendment to adopt a nonelective contribution safe harbor design can be adopted any time before the last day for distributing excess contributions for the plan year, if the nonelective contributions are at least 4% of each employee’s compensation.

The full text of IRS Notice 2020-86 is available at https://www.irs.gov/pub/irs-drop/n-20-86.pdf.

RADICAL New Transparency Rules Likely Apply to Your Health Plan In One Year

“To make fully informed decisions about their health care, patients must know the price and quality of a good or service in advance.”[1]

New rules published last month likely require your employer health plan to phase-in certain disclosures over a three-year period beginning in one year:

  1. January 1, 2022 (three files must be disclosed): For plan years beginning on or after January 1, 2022, non-grandfathered group health plans will be required to make available to the public three separate machine-readable files that include detailed pricing information (standardized format and updated monthly):
    • File #1 (in-network providers): The first file must show the negotiated rates for all covered items and services between the plan and in-network providers, except prescription drugs (see File #3 below).
    • File #2 (out-of-network providers): The second file must disclose the historical payments to, and billed charges from, out-of-network providers.
    • File #3 (prescriptions): The third file must disclose the in-network negotiated rates and historical net prices for all covered prescription drugs.
  1. January 1, 2023 (online shopping tool required for 500 items): For plan years beginning on or after January 1, 2023, non-grandfathered group health plans must make available to participants, beneficiaries, and enrollees (or their authorized representative) personalized out-of-pocket cost information, and the underlying negotiated rates, for 500 identified covered health care items and services through an internet-based self-service tool, and in paper form, upon request.  (NoteThis is intended to give consumers real-time and accurate estimates of their cost-sharing liability for health care items and services from different providers in real time, allowing them to both understand how costs are determined and also to shop and compare health care costs before receiving care.)
  1. January 1, 2024 (online shopping tool for everything): For plan years beginning on or after January 1, 2024, non-grandfathered group health plans must make available to participants, beneficiaries, and enrollees (or their authorized representative) personalized out-of-pocket cost information, and the underlying negotiated rates, for all covered health care items and services, including prescription drugs, through an internet-based self-service tool, and in paper form, upon request.

These disclosures are radical.  Network providers and third-party administrators will be working hard and spending a lot of money over the next 12 months to try to comply with these new requirements.  Ultimately, employers are likely responsible for ensuring compliance so you might check with your service providers to find out their plan and make sure you have an understanding of their timeline (which is likely just starting to develop).

[1]              Executive Order on Improving Price and Quality Transparency in American Healthcare to Put Patients First (June 24, 2019).

Employer health plans must pay the cost of a COVID-19 vaccine

As many have likely heard, multiple COVID-19 vaccine candidates have rapidly reached the final stages of development and are showing extraordinary effectiveness. The vaccines are beginning to be submitted to the FDA for emergency approval before hitting the market. This means that employers need to start thinking about how this will affect their workplace benefit plans now.

As my colleague Charlie Plumb recently wrote, employers are generally permitted to implement mandatory vaccine policies that require employees to be vaccinated before returning to the workplace. Assuming no disability or religious exception applies, the next question is this: Who has to pay for it?

Surprisingly, the answer is pretty simple: Employer-sponsored group health plans (whether fully- or self-insured) will be required to pay the full cost of the vaccine for employees covered under the plan with no cost-sharing (copay, coinsurance, deductible) to the employee.

A. GENERAL PREVENTIVE SERVICE RULES

As employee benefits professionals and insiders are inevitably aware, the Affordable Care Act (the “ACA”) already requires group health plans and insurers to cover certain “preventive care” items with no cost-sharing (also called first-dollar coverage), such as the flu vaccine. These items are generally listed on the HealthCare.gov website.

The typical process for an item to be classified as a “preventive service” starts with certain governmental groups, such as the CDC or the United States Preventive Services Task Force making a “recommendation” (although it is not as much a recommendation as a requirement) that an item should be classified as a preventive service. The item must then receive first-dollar coverage under a group health plan or policy starting with the first plan year that begins one year after the date the recommendation is made. Also, first-dollar coverage is generally only required when participants receive care from an in-network provider.

B. ACCELERATED COVERAGE TIMELINE FOR COVID-19 VACCINE

Because of the ensuing pandemic, Congress found this timeline unacceptable. The CARES Act modified the preventive service rules for the COVID-19 vaccine in early March before any sign of a vaccine was in sight. The CARES Act requires group health plans to provide first-dollar coverage of COVID-19 vaccines within 15 business days after the vaccine receives an “A” or “B” rating from the United States Preventive Services Task Force or receives a recommendation from the Advisory Committee on Immunization Practices of the CDC.

Just to reemphasize, plans generally have at least a year after a new item is added to the preventive services list to provide first-dollar coverage. But now, first-dollar coverage for a COVID-19 vaccine is required within 15 business days after the applicable governmental recommendations are made. Therefore, plan sponsors need to keep an eye out for these recommendations to ensure that their health plans are being administered properly (and are properly amended to reflect this requirement).

C. FULL COVERAGE REQUIRED FOR OUT-OF-NETWORK VACCINE

Also distinct from the traditional ACA preventive care rules, group health plans and insurers must pay the full cost of COVID-19 vaccines regardless of whether administered in- or out-of-network. In a joint interim final rule published by the Departments of Treasury, Labor, and Health and Human Services, plans and insurers are required to pay out-of-network providers a “reasonable” reimbursement rate in order to provide a “meaningful” benefit to participants and, presumably, to entice enough providers to administer the vaccine. A reasonable rate is generally the prevailing market rate, the Departments say. The Departments deem the amount paid under Medicare to be reasonable. Finally, providers who are participating in the CDC COVID-19 Vaccination Program are prohibited from balance billing (also known as surprise billing) vaccine recipients.

D. THE BOTTOM LINE

The big implication of these rules is that employers will have to bear the full cost of the vaccine for each employee covered under its health plan. To the extent an employer is going to mandate employees to become vaccinated before returning to the workplace, employers will have to weigh the cost of requiring employees to become vaccinated (when some employees might not have gotten the vaccine otherwise) against the costs of possible continued loss in productivity due to an ill workforce or employees working from home.

New legislation focusing on retirement savings attempts to build on SECURE Act

SECURE Act

As you probably remember, last year President Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.  The SECURE Act was a far-reaching and bi-partisan effort aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their savings.  A few of the major components of the SECURE Act included:

  • Pushing back the age at which retirement plan participants need to take required minimum distributions from 70 ½ to 72.
  • Repealing the maximum age for traditional IRA contributions.
  • Allowing individuals to use 529 plan money to repay student loans.
  • Allowing penalty-free withdrawals from retirement plans for birth or adoption expenses.

Securing a Strong Retirement Act of 2020

Just last month, Congressmen Richard Neal (D-Mass) and Kevin Brady (R-Texas) introduced the Securing a Strong Retirement Act of 2020.  This new legislation attempts to build on the momentum from last year’s SECURE Act to encourage retirement savings. A few highlights of this new bill include:

  • Promoting saving earlier for retirement by expanding automatic enrollment in retirement plans.
  • Pushing back further the age at which retirement plan participants need to take required minimum distributions from 72 to 77.
  • Increasing catch-up contributions for those age 60.
  • Treating student loan payments as elective deferrals for purposes of matching contributions.

A copy of the Securing a Strong Retirement Act of 2020 and section-by-section summary of the bill can be found in the attached press release by the Ways & Means Committee:

https://waysandmeans.house.gov/media-center/press-releases/neal-and-brady-introduce-new-bipartisan-legislation-strengthen-americans

Moving forward

It is unclear if this legislation will pass next year in a possibly deeply-divided Congress.  But it appears there is consensus among both parties to help Americans save for retirement.   We will continue to monitor Congress’s progress with this new important piece of legislation.

Defined Contribution Plan Restatement Period Begins

The IRS has recently issued to document vendors opinion letter approvals for updated pre-approved defined contribution plan documents.  This starts the next cycle of required defined contribution plan document restatements.   If you are an employer that currently sponsors a 401(k) plan, profit sharing plan, money purchase plan or ESOP, and the plan document is currently on an IRS pre-approved document, you will need to restate your plan document on a newly approved document on or before July 31, 2022.

Rolling these new documents out to plan sponsors is of course a big undertaking for retirement plan document vendors, and they will be attacking this task in a very systematic way in the coming months so that their adopting employers can meet the deadline. The document vendors play the primary role in the plan restatement process. They will notify plan sponsors when their plan restatement process is scheduled and give plan sponsors a time period to review draft documents with legal counsel, obtain board of director approval, and execute and return the documents.  The documents will include the restated plan and usually an updated service agreement.

It is important to keep in mind that the plan sponsor/employer needs to be on top of the process.   The plan sponsor is responsible for reviewing, approving and adopting the restatement.  The document vendor will usually not accept responsibility for the timely completion of this process or the accuracy and correctness of the documents. Drafting mistakes are not uncommon, so it is critical for employer to not treat the restatement draft as a perfunctory “sign and return” task.   The plan sponsor should carefully review the draft to make sure that it is accurate. This process is also an opportunity to compare the plan provisions with the actual administration of the plan and to consider plan design changes.  When you receive the draft documents from your document vendor, we strongly urge you to devote adequate time and attention to getting this important task completed.