2010 will be remembered by benefits professionals as a year dominated by Health Care Reform. Health Care Reform aside, there were other significant developments in benefits law. And as always we must tell you that this is not a complete list, and you should contact us for advice specific to your benefit programs.
1. The DOL issued three sets of disclosure regulations in 2010: disclosures Plans must ask service providers to make (effective July 16, 2011);1 disclosures on investment fees and expenses to plan participants (effective for plan years beginning after October 2011);2 and more fee and investment disclosures related to target date funds (these are proposed regulations, and so not yet effective).3 These regulations don’t directly determine fees that may be charged, although by requiring fuller disclosure some believe that lower fees will result. Unfortunately, the DOL has not yet eased its restrictions on electronic disclosures.4
2. The Ninth Circuit Court of Appeals5 joined the Third, Fifth, and Sixth Circuits in adopting the Moench presumption.6 Under the Moench presumption, ESOP fiduciaries who invest plan assets in employer stock pursuant to a plan requirement to do so – or who fail to divest the plan of employer stock – are presumed to have acted prudently.
3. The stock market drop at the end of 2008 came on the heels of the 2006 Pension Protection Act, which tightened funding rules for pension plans. So in 2010 Congress provided some relief in the Pension Relief Act (PRA).7 For example, under the PRA a multiemployer plan may elect to lengthen its amortization period and smooth recognition of 2008 and/or 2009 losses over a longer period.8 However, an electing plan cannot increase benefits for two years. Even with an explanatory notice,9 parts of the relief and prohibition on benefit increases remain unclear.
4. The Small Business Jobs Act passed in 201010 allows a participant to “convert” 401(k) elective deferrals to after-tax Roth accounts (if the plan has a Roth feature). The plan must first permit the conversion, and the participant must be eligible for a distribution.11 In-plan Roth conversions are intended to loosely mirror rollovers to Roth IRAs, and so in-plan Roth conversions do not have the participant income limits that apply to Roth IRA contributions.
5. The IRS offered Heroes Earning Assistance and Tax Relief (HEART) Act12 guidance on a variety of issues, including differential wage payments, survivor rights, deemed severance, and optional crediting of make-up benefits.13 HEART Act amendments are due by the end of the 2010 plan year.
6. The Department of Labor issued final regulations regarding the timing of QDROs.14 These final regulations make no substantial changes to 2007 interim regulations, which generally allow QDROs to be entered after death and after a participant’s annuity starting date.15 However, in introducing these final rules, the DOL also endorsed prior court cases ruling that if a participant has already retired with a survivor annuity, that survivor annuity cannot be waived or altered in a subsequent QDRO.16
7. With the flat economy, the following compensation and benefits limits will not change for 2011: Maximum elective deferral is $16,500; maximum catch-up contribution is $5,500; maximum compensation to be taken into account is $245,000, and highly compensated employees still earn more than $110,000.
Health and Welfare Plans
1. HHS issued proposed regulations implementing many of the new HIPAA privacy and security rules enacted last year in the Health Information Technology for Economic and Clinical Health (HITECH) Act.17 Most plans will need to update their HIPAA policies and procedures, business associate contracts, etc., to comply. The good news is that compliance is not required until 180 days after the regulations are finalized, and plans have an additional year to make necessary changes to business associate contracts.18 (Unfortunately, this one-year respite came after the February 2010 HITECH effective date had passed.)
2. A new model CHIP notice (to be delivered to participants annually) has been issued; for more details, see the New Law Bulletins at www.mmpl-law.com.
3. There is a new IRS Form 8928, self-reporting for excise taxes caused by violations such as COBRA and HIPAA failures. For more details, see the New Law Bulletins at www.mmpl-law.com.
4. Title II GINA regulations effective January 10, 2011 were issued in 2010, impacting both employment practices and wellness programs. Notably, the regulations permit employers to request genetic information (e.g., family medical history) through a wellness program, provided certain requirements are met. For more details, see the New Law Bulletins at www.mmpl-law.com.
5. At the beginning of 2010 the government issued interim final regulations on the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).19 The regulations add detail to what is otherwise a rather general requirement that group health plans that provide mental health benefits do so on an equivalent basis with any medical/surgical benefits. For more details, see the New Law Bulletins at www.mmpl-law.com. The DOL later issued FAQs on subclasses of care and enforcement,20 and the increased cost exemption.21
6. We can’t resist a few notes about Health Care Reform that we’ve learned since publishing our initial review last Spring:
(a) Health Care Reform requires that plans continue coverage for children under age 26. Under regulations, plans may not charge children different premiums or offer different benefits based on their age, student status, marital status, residency, dependency status, etc. 22 However, a plan may decide not to cover any children, or to cover only biological children. And it appears that these rules don’t apply to covered grandchildren, nieces, and nephews.23
(b) The IRS has delayed enforcement of new insured plan nondiscrimination rules under Health Care Reform until after regulations are issued.24 When those regulations are finalized, insured health plans will not be able to provide better benefits to highly compensated employees than to other employees, unless the insured plan has Grandfathered status under Health Care Reform. Now, self-funded plans are subject to nondiscrimination rules.25 (Unfortunately, the IRS issued its delay notice at the end of December 2010, long after many plans had modified benefits to comply with the new discrimination rules.)
(c) At the end of 2010 the DOL also clarified that the effective date of the new rule requiring plan participants receive 60-days advance notice of any benefit reductions isn’t until 2012.26 Sixty-days advance notice is 120 days earlier than previously required.27 (Unfortunately, many plans with years ending in September through February had already complied with this new advance notice requirement, and may have delayed implementing optional changes needed to offset the added expense of mandated Health Care Reform changes.)
(d) HHS has begun accepting and paying Early Retiree Reinsurance Program (ERRP) subsidies to plans that provide health coverage to retirees. Once $5 billion has been paid to qualifying plans, the subsidy will end.
(e) HHS has begun approving applications to excuse “mini-med” plans from the maximum benefit limits of Health Care Reform.
(f) In regulations issued last summer we learned that to remain Grandfathered a plan sponsor may make few changes to benefits, and must beware of certain structural changes that might run afoul of anti-abuse regulations. 28 (For example, changes to eligibility that move employees to a different plan may present risks.) However, the DOL has clarified that eliminating eligibility entirely for certain employees is not prohibited.29
(g) Health plan claim and appeal procedures will change for plans that lose their Grandfathered status under Health Care Reform. Of import, plans must have at least 3 internal review organizations at the ready and may need to respond more quickly to requests for review. For more details, see the New Law Bulletins at www.mmpl-law.com.
(h) Notwithstanding rather long and confusing regulations,30 the government has offered no concise list of preventive care benefits that can be communicated to participants. The regulations seem to be confusing “medically necessary” procedures, where a health factor indicates the need for a test or procedure, and preventive care, which is age-appropriate care without consideration of health factors.
(i) The IRS delayed the 2011 requirement that employers include the cost of health coverage on Form W-2s.31
We close with a few comforting words for our friends administering plans from Chief Justice Roberts of the Supreme Court: People make mistakes. Even administrators of ERISA plans. That should come as no surprise, given that the Employee Retirement Income Security Act of 1974 is “an enormously complex and detailed statute….“32
Not Intended As Legal Advice.
- 75 Fed. Reg. 41,600 (July 16, 2010).
- 75 Fed. Reg. 64,910 (Oct. 20, 2010).
- 75 Fed. Reg. 73,987 (Nov. 30, 2010).
- See 29 C.F.R. § 2520.104b-1(c).
- Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir. 2010). The Eighth Circuit recently avoided the question of whether to adopt the Moench presumption in Brown v. Medtronic, Inc., 2010 WL 5059594, No. 09-2524 (8th Cir. Dec. 13, 2010).
- Moench v. Robertson, 62 F.3d 553 (3rd Cir. 1995); Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243 (5th Cir. 2008); Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995).
- Pub. L. No. 111-192.
- Pub. L. No. 111-192, § 211(a)(2).
- IRS Notice 2010-83.
- Pub. L. No. 111-240.
- Amendments to the Plan for 2010 Roth conversions, however, may be made in 2011.
- Pub. L. No. 110-245.
- IRS Notice 2010-15.
- 29 C.F.R. § 2530.206.
- These regulations were issued as directed by the Pension Protection Act of 2006. See Pub. L. No. 109-280, § 1001.
- 75 Fed. Reg. 32,846, 82,848 (June 10, 2010) (see text at footnote 6).
- 75 Fed. Reg. 40,867 (July 14, 2010).
- Final regulations are expected in March 2011.
- 75 Fed. Reg. 5,409 (Feb. 2, 2010).
- MHPAEA FAQs
- ACA Part V FAQs.
- 26 C.F.R. § 54.9815-2714T and T.D. 9482.
- IRS Notice 2011-1.
- 26 U.S.C. § 105(h).
- See supra note 21.
- ERISA § 104(b)(1) requires notices 60 days after a change.
- 75 Fed. Reg. 34,537 (June 17, 2010).
- See DOL FAQs Part II, Question 1, clarifying that only those changes in regulations will result in loss of Grandfathered status.
- 75 Fed. Reg. 41726 (July 19, 2010).
- IRS Notice 2010-69.
- Conkright v. Frommert, 130 S. Ct. 1640, 1644 (2010).