New Guidance Related To Health Plans & Health Care Reform (PPACA)
Summary of Benefits and Coverage Requirement Delayed; New Regulations Published
Last August, the government issued proposed regulations implementing PPACA’s four-page uniform summary of benefits and coverage (“SBC”) requirement. The proposed regulations originally included a compliance date of March 23, 2012, which was delayed pending the issuance of final SBC regulations. This month, the responsible federal agencies (DOL, HHS and IRS) issued the final SBC regulations, which will apply starting with a plan’s first open enrollment period that begins on or after September 23, 2012. We have prepared a separate Bulletin (attached) addressing the SBC requirements under the final regulations.
U.S. Supreme Court Accepts Review of PPACA, While D.C. Circuit Upholds Constitutionality of Individual Mandate
In November, the U.S. Supreme Court agreed to hear arguments regarding the individual mandate under PPACA and other health care reform questions in Florida v. U.S. Department of Health & Human Services (a case brought by 26 states, in which the Eleventh Circuit Court of Appeals ruled that the individual mandate should be struck down). Legal briefs are being submitted and the Supreme Court will hear oral arguments on March 26-28 on a broad set of issues, including: (1) the constitutionality of PPACA’s individual mandate (the requirement that beginning in 2014 individuals without health insurance obtain it or pay IRS penalties); (2) if the individual mandate is found unconstitutional, whether that portion of the law alone should be struck down, or whether certain related provisions or all of PPACA should also be overturned; (3) whether provisions related to state funding of certain Medicaid provisions are constitutional; and (4) whether challenges to the individual mandate of PPACA are timely to raise now, or can only be brought beginning in 2015, when individuals will first be required to pay penalties for failures to maintain coverage in 2014.
The variety of PPACA issues being addressed by the Supreme Court creates an especially broad set of possible outcomes regarding the individual mandate and PPACA as a whole, including: (1) fully upholding PPACA; (2) completely overturning PPACA; (3) a rejection of the individual mandate alone; (4) a rejection of the individual mandate and such other provisions that the Supreme Court finds inextricably intertwined with it; or (5) no decision at all, with a delay until at least 2015 (when the first actual penalties would be due) before the Supreme Court decides the question. The Supreme Court is expected to rule on the case by late June 2012.
Also in November, in a 2-to-1 decision, the District of Columbia Court of Appeals found the individual mandate of PPACA to be constitutional. (The dissenting judge considered it inappropriate to consider the constitutionality of the individual mandate until 2015 when the first penalties will come due.) The varying decisions of the federal courts regarding PPACA will of course be superseded by the Supreme Court’s decision.
Updated Guidance on Women’s Preventive Care Issued
Last year, the DOL, IRS and HHS issued amended interim final regulations exempting health plans sponsored by churches1 (and insurance policies issued with respect to these plans) from having to provide free contraceptives under PPACA’s preventive care rules.2 The exemption did not extend to religiously-affiliated employers such as hospitals, schools and charities. The agencies recently finalized the regulations without change, but announced a one-year non-enforcement safe harbor for religiously-affiliated employers that meet certain requirements.3 The agencies stated that before the safe harbor period ends, they intend to issue regulations that will shift these employers’ responsibility for providing free contraceptives to insurers. Specifically, if a religiously-affiliated employer chooses not to cover contraceptives, the insurer would have to provide free contraceptives directly to the employer’s participants and beneficiaries. The agencies also stated that they “intend to develop policies to achieve the same goals” with respect to self-funded plans maintained by religiously-affiliated employers. The final regulations and guidance on the non-enforcement safe harbor are available on the DOL’s Health Care Reform website, at http://www.dol.gov/ebsa/healthreform/.
New Guidance Issued on PPACA’s Automatic Enrollment, Waiting Period, and Excise Tax Rules
Earlier this month, the DOL, IRS and HHS issued new guidance in the form of frequently asked questions (FAQs) on PPACA requirements impacting plan eligibility and enrollment that will go into effect in 2014 or later. While these FAQs are not formal guidance that may be relied upon, they provide useful insight regarding the agencies’ views on these questions and a preview of what the agencies’ regulations may ultimately look like. The agency FAQs are available at http://www.dol.gov/ebsa/newsroom/tr12-01.html. Highlights include the following:
Delay in Automatic Enrollment Regulations: Under PPACA, plans sponsored by large employers4 must automatically enroll eligible full-time employees (subject to notice and the opportunity to opt out). This requirement will not be effective until after regulations are issued. The agencies previously indicated that regulations would be issued before 2014, but the new FAQs advise that the regulations are not expected until after 2014.
90-Day Limitation on Waiting Periods: For plan years beginning on and after January 1, 2014, PPACA prohibits eligibility waiting periods that exceed 90 days. The FAQs clarify the agencies’ current views on the following aspects of this rule: First, plans will not have to cover all employees after 90 days – i.e., exclusions by job category or classification, including part-time status, will still be permitted. Second, the 90-day waiting period begins when the employee is otherwise eligible for coverage under the terms of the Plan. Thus, an otherwise eligible employee cannot be made to wait more than 90 days before coverage is effective. Third, plans may condition eligibility on an employee’s working a specified number of hours within a given period – such as under an hour bank provision – so long as the required hours do not exceed a certain number (to be specified in the upcoming guidance). The FAQs provide the following helpful example: A plan covers part-time employees who have completed 750 hours of service. Assuming this is a permissible hours requirement under the upcoming guidance (a point the FAQs do not commit to), a part-time employee’s coverage would need to begin no later than 90 days after the employee completes 750 hours of service.
Employer “Shared Responsibility” Rules: The FAQs also offer new insight on application of the employer excise tax rules under Code Section 4980H, which become effective in 2014. Notably, they announce that upcoming guidance is expected to coordinate with PPACA’s 90-day waiting period rule so that employers will not be subject to any excise taxes merely because an employee is not offered coverage while he or she completes a waiting period of up to 90 days as permitted by PPACA. The FAQs also confirm that upcoming guidance is expected to allow employers to: (1) use an employee’s W-2 wages as a safe harbor for determining the affordability of coverage, and (2) use certain safe harbors and presumptions for determining whether current and newly-hired employees are “full-time” for excise tax purposes.
Guidance Issued on PPACA’s Medical Loss Ratio Rules
In December, HHS issued final regulations implementing PPACA’s medical loss ratio rules for health insurers, and the DOL issued Technical Release 2011-04 providing guidance on ERISA and fiduciary issues implicated by an insured plan’s receipt of insurance company rebates under these rules. (The final regulations amended interim regulations that were issued in 2010, and changes made in the final regulations are effective January 1, 2012.) HHS also published model notices earlier this month for insurers to use in connection with their disclosure obligations under these rules.
PPACA requires that insurers report annually on their premium revenue and on categories of spending of premium dollars in the large group, small group, and individual health insurance markets in each state. It also establishes medical loss ratio (MLR) standards for insurers. Under these rules, insurers are required to provide rebates if their spending on medical benefits provided to enrollees and on activities that improve health quality in relation to premiums charged is below specified percentages – 85% for insurance in the large group market and 80% for insurance in the small group and individual markets.5 These standards are applied based on aggregate market data in each state rather than a particular health plan’s experience. The regulations provide detailed guidance on PPACA’s insurer disclosure requirements, calculation of MLRs, and the payment of rebates. Rebates for insured ERISA plans must be paid to the “policyholder” for use or distribution to participants and beneficiaries in accordance with DOL Technical Release 2011-04. Rebates for other plans must be handled in accordance with requirements detailed in the regulations. The MLR rules were effective beginning in 2011, and initial insurance company rebates are due by August 2012.
Under DOL Technical Release 2011-04, if the ERISA plan is the policyholder, the rebate will generally be considered a plan asset that must be used for the exclusive benefit of plan participants. On the other hand, if the employer is the policyholder, the employer may be able (depending on the language of the plan or insurance contract) to retain the portion of the rebate attributable to employer contributions and treat only the portion of the rebate attributable to employee contributions as a plan asset. To the extent the rebate is a plan asset, plan fiduciaries must decide how to apply or distribute the rebate in the best interests of plan participants based on the standards and principles articulated in the Technical Release. The Technical Release generally mirrors prior DOL guidance related to other types of insurance company distributions, such as settlement proceeds and demutualization.
The final regulations and the DOL Technical Release are available on the DOL’s Health Care Reform website, at: http://www.dol.gov/ebsa/healthreform/. The model notices are available at: http://cciio.cms.gov/resources/other/index.html#mlr.
Additional IRS Guidance on W-2 Reporting Requirements for Health Coverage
In January, the IRS issued Notice 2012-9, amending and restating its earlier guidance (Notice 2011-28) on PPACA’s requirement that employers report the cost of applicable employer-sponsored group health plan coverage on Forms W-2. This requirement takes effect for 2012 Forms W-2 that employers will generally issue in January 2013. Our Bulletin summarizing the original guidance is available at http://www.songmondress.com/Articles/. The changes made in Notice 2012-9 consist largely of minor clarifications made in response to public comment. For example, the new guidance clarifies that: (1) for purposes of the current exemption applicable to employers filing fewer than 250 Forms W-2 for the prior year, W-2s filed by an agent for the employer under Code § 3404 are counted; (2) tribally chartered corporations wholly-owned by federally recognized Indian tribal governments are exempt from the reporting requirements; (3) reporting by related employers that concurrently employ individuals but do not use a common paymaster may be done entirely on the W-2 for one of the employers or may be allocated among all the employers’ W-2s; and (4) coverage under EAPs and wellness programs need not be included as long as the employer does not charge a premium with respect to that type of coverage for qualified beneficiaries under COBRA. Notice 2012-9 also provides guidance on how to calculate the reportable amount in specific scenarios, such as (1) where coverage extends over a payroll period that includes December 31st, (2) where coverage consists of both reportable group health plan coverage and non-reportable coverage, and (3) where the employer is notified after December 31st of a loss of eligibility (such as a divorce) that occurred during the prior year. In this last scenario, the Notice confirms there is no obligation to go back and recalculate the reportable amount based on the new information. A copy of IRS Notice 2012-9 is available at http://www.irs.gov/pub/irs-drop/n-12-09.pdf.
Essential Health Benefits Guidance Issued
In December, HHS issued a Bulletin providing the methodology for states to use in defining essential health benefits (“EHBs”) that must be provided by certain health insurance policies beginning in 2014 under PPACA.6
The Bulletin (and a follow-up set of Frequently Asked Questions issued this month) address the timing and methods that states must follow in defining those “typical” EHB services that will generally need to be covered by health insurance policies in the state. This fills a gap under PPACA, which left open the question of what constitutes a “typical” health plan’s coverage of essential health benefits. Because the states’ actions will establish the EHB requirements for health insurance policies issued in each state, employer plans purchasing insurance coverage in the small group insurance market (and persons purchasing individual health policies) will be impacted. In addition, while self-insured health plans and large group market health plans are not required to cover all EHB services – and grandfathered small group market insured plans may delay covering all EHB services until their grandfathered status is lost – such plans are prohibited from imposing lifetime dollar limits and restricted from imposing annual dollar limits for EHB coverage. For these plans, it is possible that the EHB coverage subject to no lifetime limits and restricted annual limits may be defined by the plan to be any set of EHB benefits that a state would be authorized to adopt as its EHB standard.
Under the guidance, states would be allowed to define the required EHB coverage by designating one benchmark plan selected (and then modified as necessary or appropriate) from a group of several options: certain products in the state’s small group insurance market; the largest employee health plans by enrollment in the state; federal employee health plans; and certain insured non-Medicaid health maintenance organizations operating in the state.7 If a state does not opt to use one of these plans as its benchmark for required EHB coverage, then the default benchmark plan (with any necessary modifications) will be the largest small group market health insurance product in that state. For illustrative purposes, HHS has issued a listing of each state’s three largest small group health insurance products.8
Under the guidance, if a benchmark selected by a state does not include coverage in one or more of the 10 mandatory EHB coverage categories, it must be supplemented by using another eligible benchmark plan’s coverage terms for each such category.9 If a benchmark’s coverage of an EHB category incorporates lifetime or annual dollar limits prohibited by PPACA, the benchmark’s terms will be used with any such limits removed, or with a substitution of benefit terms in that category that has actuarially equivalent value to that category. In addition, even if the selected benchmark otherwise complies with PPACA, states would be permitted to make actuarially-equivalent substitutions of benefits for each EHB category, replacing the terms of the selected benchmark in any such category with benefits of equivalent value to that benchmark.
The guidance states that for insured plans with employees residing in multiple states, the EHB benchmark in the state where the insurance policy was issued will determine the EHB mandates for all participants, regardless of where each participant resides.
The HHS guidance will become effective if, as HHS intends, it is issued in final form as a regulation. The two pieces of HHS guidance discussed can be found at:
http://cciio.cms.gov/resources/files/Files2/12162011/essential_health_benefits_bulletin.pdf and http://cciio.cms.gov/resources/files/Files2/02172012/ehb-faq-508.pdf.
New HIPAA Electronic Transaction Regulations Issued
In January, HHS issued the second in a series of regulations required by PPACA to create further uniformity in the HIPAA electronic transactions system. (For information regarding the first set of regulations, see our July 2011 Bulletin.) In the new interim final regulations, HHS adopts two standards for electronic funds transfer (EFT) transactions, which apply when a health plan pays a provider through an Automatic Clearing House (ACH) network. The regulations do not require plans pay providers electronically. However, when plans do pay a provider through an ACH network, plans must: (1) use a particular format when initiating the payment, and (2) include specific data that makes it easier for providers to match the payment to the claim. HHS anticipates that having a standardized ACH process will encourage plans and providers to pay claims electronically and will reduce claims processing costs.
Compliance with the new regulations is required beginning in 2014. Business associate contract updates will not be needed if the contract already requires compliance with the electronic transaction rules. However, a plan that relies on its financial institution to properly format EFT payments should confirm that the financial institution will timely implement the new standards, as the plan is ultimately responsible for compliance. The regulations are available at http://www.gpo.gov/fdsys/pkg/FR-2012-01-10/pdf/2012-132.pdf.
IRS Guidance Suggests that State Law Controls “Stepchild” Status under PPACA
Under PPACA, health plans and insurance policies covering children must make such coverage available to children until they reach age 26 (with the exception of certain grandfathered health plans, which can terminate a child’s coverage before age 26 if he or she has other employment-based health coverage, other than coverage as a dependent child).
Guidance issued by the IRS in September raises the possibility that children of an employee’s same-sex spouse or registered domestic partner who are recognized as “stepchildren” of the employee under state law must be allowed to continue coverage until age 26 to the same extent as other stepchildren covered under the plan. Although the IRS guidance discussed income tax issues and did not address PPACA directly, the guidance raises the possibility that, notwithstanding the federal Defense of Marriage Act, stepchild status under PPACA will be controlled by state law for purposes of the age-26 mandate.10 See “Questions and Answers for Registered Domestic Partners in Community Property States and Same-Sex Spouses in California,” Q/A-7, www.irs.gov/newsroom/article/0,,id=245869,00.html.
Mental Health Parity FAQs Provide Guidance on “Nonquantitative” Treatment Limitations
In November, the agencies issued a new set of Frequently Asked Questions (FAQs) regarding the mental health and substance use disorder parity rules imposed by the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”). Under the MHPAEA and previously issued guidance, group health plans that provide both medical benefits and mental health or substance use disorder benefits generally cannot impose financial or quantitative treatment limitations on mental health or substance use disorder benefits that are more restrictive than those that apply to medical benefits.11 A separate rule provides that under the terms of the plan as written and in operation, the processes, strategies, evidentiary standards, and other factors used in applying a nonquantitative treatment limitation to mental health and substance use disorder benefits must be comparable to and applied no more stringently than those used in applying the nonquantitative treatment limitation to medical benefits – except where recognized clinically appropriate standards of care justify the difference.
To help plans understand and apply these rules, the new FAQs address the applicability of MHPAEA to various types of nonquantitative treatment limitations, and provide examples of permissible and prohibited differences in mental and substance use disorder benefit administration including: different preauthorization requirements; different standards for review of medical necessity, or for determinations of “experimental or investigative” treatment; different standards for provider participation in a preferred provider network; differences in determining “usual, customary, and reasonable” charges; and different standards for conservative therapy prerequisites. The new FAQs also include an example illustrating how to determine the maximum copayment a plan can apply to mental health and substance use disorder benefits within a classification.
The FAQs can be found at: http://www.dol.gov/ebsa/faqs/faq-aca7.html.
Court Finds Reimbursement to Plan Improper Where Employer Sought More Than Entire Litigation Recovery
In November, in US Airways, Inc. v. McCutchen, 2011 WL 5557411 (3rd Cir. 2011), the Third Circuit found that it would be “unjust enrichment” for US Airways’ health plan to demand full reimbursement for the $66,866 it had paid in benefits related to an accident where the net recovery to the participant after attorney’s fees was less than that amount – i.e., $66,000. The appeals court in McCutchen found US Airways’ claim to reimbursement of the entire amount (and more) of the participant’s net recovery to be “unprecedented” and stated that “requiring McCutchen to provide full reimbursement . . . constitutes inappropriate and inequitable relief” because it would not only leave him with no recovery at all, but require him to repay benefits he had already received. Building on the U.S. Supreme Court’s decision in Great West v. Knudson, the court emphasized that “equitable relief” available under ERISA § 502(a)(3) must be “appropriate equitable relief” and found US Airways’ demand not to be “appropriate.” The McCutchen court implicitly considered some recovery by the US Airways plan permissible, and left it to the district court to conduct further proceedings to determine what lesser amount of recovery to the plan would in fact constitute “appropriate equitable relief.”
New Guidance Related to Retirement Plans
IRS Provides Informal Guidance on Loan Interest Rates
401(k) plans that offer participant loans must charge a reasonable rate of interest to avoid a prohibited transaction under ERISA and the Code. An interest rate is “reasonable” if it is consistent with what commercial lenders would charge under similar circumstances. In lieu of investigating commercial rates, plan fiduciaries sometimes use an interest rate equal to the prime rate plus 2%. During a recent phone forum, the IRS informally blessed this approach. The IRS also indicated that a lesser rate could be reasonable, but cautioned that plans must be prepared to show documentation that the lesser rate is consistent with commercial rates. The DOL, however, has not opined on the “prime plus 2%” approach. Technically, DOL regulations require that fiduciaries of regional plans set interest rates based on regional factors. (Plans that are nationally administered may set a national rate if justified by administrative costs.) Therefore, notwithstanding the IRS’s recent guidance, the DOL may not view a “prime plus 2%” rate as reasonable for a regional plan unless plan fiduciaries have confirmed that it is consistent with regional commercial rates.
IRS Announces 2012 Plan Limits
The IRS has issued updated plan limits for 2012. The limit on elective deferrals increased from $16,500 to $17,000 (but the catch-up contribution limit remains unchanged at $5,500). The Code Section 415 annual limits also increased (from $49,000 to $50,000 for defined contribution plans, and from $195,000 to $200,000 for defined benefit plans). The dollar threshold for HCE status also increased from $110,000 to $115,000. For changes to other plan limits, visit the IRS website at: http://www.irs.gov/retirement/article/0,,id=96461,00.html.
DOL Clarifies Its Electronic Fee Disclosure Guidance
Last year, the DOL issued Technical Release 2011-03, which provided relief with respect to the electronic disclosure of fee information to participants in defined contribution plans who may direct their own investments. Specifically, the DOL stated it would not penalize plan administrators that provide fee information in accordance with the terms of the Release (which fall outside the DOL’s electronic disclosure safe harbor). For more information on the Technical Release and the fee disclosure rules, see our July & October 2011 Bulletins at http://www.songmondress.com/Articles/.
The DOL recently clarified and restated the Technical Release in the following respects: (1) the electronic disclosure method described in the Technical Release12 is not limited to email disclosures – it can also be used to post fee information on a secure website that allows for 24/7 access; and (2) the comparative chart of investment information is not among the types of fee information that can be included in online participant benefit statements that are provided in accordance with Field Assistance Bulletin (FAB) 2006-03.13 The chart can, however, be included in or with benefit statements that are provided in paper form or electronically in accordance with the Technical Release’s disclosure method noted above.
The non-enforcement policy applies only until the DOL issues further guidance. For a copy of the restated Technical Release, visit http://www.dol.gov/ebsa/newsroom/tr11-03r.html.
Final Regulations on Service Provider Fee Disclosures Issued – Extended Effective Dates for Service Provider and Participant-Level Fee Disclosures
Earlier this month, the DOL issued final regulations under ERISA § 408(b)(2), replacing interim final regulations originally issued in 2010.14 These regulations require certain service providers to retirement plans to disclose information about the services they provide to such plans and the compensation they will receive for those services. For more information about the 2010 interim final regulations, see our July 2011 Bulletin at http://www.songmondress.com/Articles/. Among other changes, the 2012 final regulations extend the effective date of the rules from April 1, 2012 to July 1, 2012. Since this is the date disclosures from service providers with existing contracts with retirement plans must be received, plans should request the disclosures from service providers this spring.
This extended effective date also delays the deadline for plan administrators to make initial disclosures under ERISA’s participant-level disclosure regulation at 29 C.F.R. § 2550.404a-5 (also discussed in our July and October 2011 Bulletins), which follows the effective date of the 408(b)(2) regulations. For calendar-year plans subject to the participant-level fee disclosure rules, the initial annual disclosures of plan- and investment-related information must now be furnished no later than August 30, 2012 (60 days after the July 1, 2012 effective date of the 408(b)(2) regulations), and the first quarterly statement must be furnished no later than November 14, 2012 (45 days after the end of the third quarter – July through September – during which initial disclosures were first required).
Guidance Regarding Lifetime Income Options Issued
In connection with the Obama administration’s proposals to increase retirement savings, the IRS recently released a package of proposed regulations and Revenue Rulings to encourage plans to provide more lifetime income distribution options – i.e., lifetime annuities. The guidance is available at http://www.irs.gov/retirement/content/0,,id=96685,00.html, and is summarized below. Note that the proposed regulations cannot be relied upon until after they are finalized.
Proposed Regulations on Longevity Annuities: The proposed regulations would provide relief from the required minimum distribution (RMD) rules so that defined contribution plans may offer a distribution option called a “qualified longevity annuity contract” (QLAC).15 QLACs are intended to help protect participants who live beyond their average life expectancies from running out of savings. To qualify as a QLAC, distributions must begin by age 85 and the annuity cannot cost more than 25% of the participant’s account balance (or $100,000, if less). Restrictions on death benefits and cash-out options also apply. The value of the QLAC would not be taken into account when determining RMDs until payments under the QLAC start. Therefore, a participant who has exhausted the rest of his or her account balance would not have to begin QLAC payments early in order to comply with the RMD rules.
Proposed Regulations on Partial Annuities: The proposed regulations would make it easier for defined benefit plans to offer bifurcated distribution options – such as allowing participants to take part of their benefits in an annuity and part in a lump sum. Currently, plans have to calculate the partial annuity using the Code’s actuarial equivalence factors instead of the plan’s own factors, which complicates benefits calculations. The proposed regulations would allow plans to use their own factors to calculate the partial annuity, subject to anti-cutback requirements. However, plans would still be required to use the Code’s actuarial equivalence factors when calculating the partial lump sum.
Revenue Ruling 2012-3: Under current law, special spousal death benefits (QJSAs and QPSAs) must be provided when defined contribution plan participants elect a life annuity. However, it was unclear how the QJSA/QPSA rules should apply when participants elect deferred annuities. In particular, plans were uncertain whether the QJSA/QPSA rules are triggered at the time a participant invests in the deferred annuity contract or if the rules are triggered later, when annuity payments start. To help resolve this uncertainty, Revenue Ruling 2012-3 provides examples of how the QJSA/QPSA rules apply. In one example, participants were able to elect a form of payment other than a life annuity at any time before annuity payments started (either by transferring amounts invested in the annuity to other investments or by electing a lump sum). In that case, the QJSA/QPSA rules were not triggered until annuity payments started – effectively transferring the burden of compliance from the plan to the annuity issuer. However, where participants were locked into a life annuity at the time of investment in the contract, the QJSA/QPSA rules applied at the time of investment. Thus, if a participant died before annuity payments started, the plan would need to provide a QPSA with respect to amounts invested in the annuity.
Revenue Ruling 2012-4: For employers who offer both defined contribution and defined benefit plans, this Revenue Ruling provides a road map for offering employees the option of rolling over some or all of their defined contribution plan distributions to the defined benefit plan in exchange for an immediate annuity from that plan. In this way, employers can provide a low-cost annuity distribution option for defined contribution plan benefits.
Final Regulations on Eligible Investment Advice Arrangements Issued
Under DOL regulations implementing the Pension Protection Act of 2006, investment advice is not considered a prohibited transaction if it is provided through a computer-modeling or level-fee arrangement and meets certain auditing, disclosure, and other requirements. To qualify, the arrangement must be audited annually by an independent auditor that did not have any role in the development or certification of the investment advice arrangement or computer model involved. The DOL has provided a model version of the disclosure to participants that is required before investment advice begins. The regulations are available at www.gpo.gov/fdsys/pkg/FR-2011-10-25/pdf/2011-26261.pdf.
Second Circuit Adopts Presumption of Prudence for Investments in Employer Stock
Following the decisions of Courts of Appeal in the Third, Fifth, Sixth, and Ninth Circuits, in October the Second Circuit adopted the “Moench presumption” regarding ERISA fiduciary responsibility for plan investments in employer stock. Under the Moench presumption, a fiduciary’s decision to maintain a plan investment in employer stock (or to offer stock as an investment option) is reviewed for abuse of discretion. Under the Second Circuit’s adoption of the Moench rule, only “dire circumstances,” and not “mere stock fluctuations,” will be sufficient to trigger a duty to terminate investments in company stock. Like the other courts adopting this rule, the Second Circuit noted that this inquiry is guided by the information available to the fiduciaries at the time of decision, and not by hindsight or after-the-fact knowledge of the magnitude of a drop in stock price. In re Citigroup ERISA Litigation, 2011 WL 4950368 (2d Cir. 2011).
1 Specifically, the exemption applies to each employer that: (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a non-profit organization described in Section 6033(a)(1) and Section 6033(a)(3)(A)(i) and (iii) of the Code (which refer to churches, their integrated auxiliaries and conventions or associations of churches, as well as to the exclusively religious activities of any religious order). 45 C.F.R. § 147.130(a)(1)(iv)(B).
2 Under PPACA, all non-grandfathered plans must cover preventive care with no cost-sharing. Effective for plan years beginning on or after August 1, 2012, preventive care includes contraceptives.
3 The safe harbor applies to the plan year that begins on or after August 1, 2012. To qualify for the safe harbor: (1) the employer must be a non-profit entity; (2) due to the employer’s religious beliefs, the plan cannot have provided any contraceptive coverage from February 10, 2012 onward; (3) the plan must notify participants that contraceptives will not be covered during the safe harbor period; and (4) the employer must document that it satisfies the above requirements. More information is available at: http://cciio.cms.gov/resources/files/Files2/02102012/20120210-Preventive-Services-Bulletin.pdf.
4 For purposes of this rule, a “large employer” is one with more than 200 full-time employees.
5 An individual state can set a higher MLR standard with respect to policies issued in that state.
6 Under PPACA, starting in 2014 most health insurance policies and small market non-grandfathered insured health plans must offer EHB coverage in 10 benefit categories equal to what a “typical” employer plan would provide. Those 10 EHB categories are: (1) ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) substance abuse and mental health services; (6) prescription drug coverage; (7) rehabilitative and habilitative care; (8) laboratory services; (9) preventive /wellness and chronic disease services; and (10) pediatric oral and vision care.
7 Specifically, under the guidance the starting point for a benchmark plan can be: the largest plan by enrollment in any of the three largest small group insurance products in the State’s small group market; any of the largest three State employee health benefit plans by enrollment; any of the largest three national FEHBP plan options by enrollment; or the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the State.
8 That list (current as of February 2012) can be accessed at:
9 Recognizing that certain categories of benefits are not widely offered, including habilitative services and pediatric oral and vision care, the guidance offers transitional compliance methods and/or alternative benchmarks to establish baselines for coverage in those areas.
10 Note that this IRS guidance does not implicate coverage of a same-sex spouse’s or domestic partner’s biological children who are adopted by the covered employee. An employee’s adopted children are treated the same as his or her biological children for purposes of the age-26 mandate.
11 As discussed in detail in our February 2010 Bulletin, under the MHPAEA a plan generally may not apply any financial requirement or quantitative treatment limitation to mental health/substance use disorder benefits in any classification that is more restrictive than the "predominant" (generally, applied to more than one-half of the benefits in that classification) financial requirement or quantitative treatment limitation of that type applied to "substantially all" (generally, applied to at least two-thirds of the benefits in that classification) medical/surgical benefits in the same classification. Therefore, if a financial requirement or quantitative treatment limitation is not applied to at least two-thirds of all medical/surgical benefits in a classification, it cannot be applied to mental health/substance use disorder benefits in that classification.
12 All fee information can be provided electronically using the Technical Release’s disclosure method, which requires the following: (1) participants must voluntarily provide their email addresses, (2) the plan administrator must issue proper initial and annual notices, (3) the electronic system must reasonably keep personal information confidential, and (4) the notices must be “calculated to be understood.” There are also special rules with respect to email addresses already on file.
13 FAB 2006-3 allows plans to provide statements online if participants have continuous web access to online statements and receive initial and annual notices. Plans may also provide statements in accordance with the Treasury Department’s electronic disclosure rules (Treas. Reg. 1.401(a)-21), which are generally less burdensome than the DOL’s safe harbor. FAB 2006-03 is available at http://www.dol.gov/ebsa/regs/fab_2006-3.html.
14 The final 408(b)(2) regulation is available at webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=25781. A summary of the changes in the 2012 final regulation is available at www.dol.gov/ebsa/408b2changes.html.
15 Section 403(b) plans, governmental Section 457(b) plans, and non-Roth IRAs may also offer QLACs.