Retirement Plans

Illinois Becomes the First State to Require Automatic Retirement Savings Program for Workers Without Access to a Workplace Retirement Plan

On January 5, 2015, outgoing Governor Quinn signed landmark legislation that created the “Secure Choice Savings Plan” which will give Illinois workers who do not have the option to participate in a workplace retirement program the opportunity to defer salary contributions to an IRA. Once established, certain Illinois employers will be required to automatically enroll employees in a Roth-style individual retirement account at a default rate of 3% of salary. Under the legislation, workers will have the opportunity to opt out of the program or change their salary deferral rate at any time. Participants will have the ability to direct their salary deferrals to a variety of investment options that the program’s board of directors will establish in an upcoming implementation period.

All Illinois employers (including non-profits) with 25 or more Illinois-based employees who do not sponsor a workplace retirement plan, and which have been in existence for more than two years, will be required to enroll their employees in the program. To be clear, the Secure Choice program will not require employers to establish a separate retirement plan. Indeed, the legislation mostly limits employer involvement to setting up employee deductions and remitting participant contributions to a centralized Secure Choice Savings plan that is administered by the State of Illinois. Employers will, however, be subject to penalties for failing to timely enroll eligible employees in the program.

The law is effective June 1, 2015 and requires the State of Illinois to appoint a board of trustees, select investment options, establish administrative procedures, and begin the enrollment process within two years of that effective date. Whether the Secure Choice will move from implementation to reality is still unclear. The legislation directs the program’s board of directors to stop implementation if the program fails to receive an opinion from the Department of Labor that exempts the State and participating employers from coverage under ERISA. The board of directors is similarly required to get an opinion from the IRS as to whether the program will receive favorable treatment under the Internal Revenue Code, and must halt the program if the IRS does not approve the arrangement. Given the two-year implementation window and the federal approval process, it could be many months before employers need to start remitting employee salary deferrals to the program.

IRS Issues 2014 Cumulative List of Plan Changes

Plan sponsors that are scheduled to file determination letter applications with the IRS for their qualified retirement plans between February 1, 2015 and January 31, 2016, (Cycle E sponsors), should be aware that the IRS recently released its 2014 cumulative list of plan changes. The list, contained in IRS Notice 2014-77, includes required and optional changes to plan qualification requirements that should to be reflected in plan documents submitted to the IRS for review.

The 2014 list mainly applies to single employer defined contribution and defined benefit plans and includes plan changes from IRS cumulative lists dating back to 2010. Some new changes for the 2014 cumulative list include, among other things, guidance on the application of the Supreme Court’s decision in U.S. v. Windsor, certain safe harbors for rollover contributions, and changes to the required minimum distribution rules for plans that offer longevity annuities. Plan sponsors should refer to the list when preparing Cycle E determination letter applications and confirm that all applicable required changes have been adopted by the appropriate deadlines.

IRS Updates Determination Letter Procedures Regarding Incomplete Applications

The IRS recently issued new guidance on how it will process determination letters starting February 1, 2015. Specifically, once the IRS receives a determination letter application, it will review that application to determine that the plan sponsor has included all the required information set forth in the procedural requirements checklist of the applicable IRS form. If an item is missing, the IRS will contact the plan sponsor in writing to request the information. The plan sponsor will then have 30 days to respond with the missing information. If the plan sponsor fails to respond within 30 days, the IRS will close the case and retain the applicant’s user fee. The plan sponsor has the opportunity to submit a new on-cycle application before the end of the plan’s applicable remedial amendment cycle.

New Comprehensive Federal Spending Bill Includes Extensive Pension Related Provisions

Both houses of Congress recently passed, and President Obama recently signed, comprehensive spending legislation that includes an amendment with the provisions of the Multiemployer Pension Reform Act of 2014 (MPRA) along with a number of other pension related provisions. Much attention has been given to a controversial provision in the MPRA that allows multiemployer pension fund trustees to reduce vested benefits for active workers as well as benefits being paid to current retirees. But the broader spending bill also includes a number of other important changes that will impact both multiemployer and single employer pension plans. For more details, please see our prior summary of the legislation.

Health and Welfare

New Proposed Rules Streamline ACA Summary of Benefits and Coverage (SBC) Disclosure Requirement

In a very welcome development for health insurance issuers and employers who sponsor self-funded group health plans, the Departments of Treasury, Labor, and HHS have issued joint new proposed regulations that will streamline one of the Affordable Care Act’s key disclosure documents—the Summary of Benefits and Coverage (SBC). For group health plans, the SBC was designed to give participants a simple way to review and compare terms under the different offerings in an employer’s group health plan. 

The original SBC rules, finalized in 2012, required numerous descriptions of plan features and were not necessarily helpful in allowing consumers and participants in group health plans to make informed comparisons of health coverage options. Based on feedback from employers, the insurance industry, and health insurance consumers, the new proposed rules will simplify the SBC and limit the amount of information that plan sponsors and insurers are required to disclose.

Among other things, the proposed rules will:

  • shorten the SBC from four double-sided pages to two and half double-sided pages;
  • eliminate language regarding annual limits on essential health benefits and pre-existing condition exclusions;
  • add a third coverage scenario that details the expenses that a plan participant could expect to pay for the treatment of a simple foot fracture with emergency room visit; and
  • include new definitions in the Uniform Glossary that must be referenced in the SBC.

The proposed rules incorporate guidance that the Departments have issued informally as well as in the form of FAQs since the SBC rules were finalized in 2012. In addition to publishing the proposed rules in the Federal Register, CMS has posted for comment updated documents including an SBC template, a sample completed SBCsample instructions for completing the SBC template, and a new uniform glossary. Once finalized, it is anticipated that the rules will be effective as of the first plan year beginning on or after September 1, 2015.

Agencies Green Light Pilot Program to Allow Limited Wrap-Around Coverage for Health Insurance Policies Purchased on an Exchange

Under proposed rules recently issued by the Departments of Treasury, Labor, and HHS, employers may participate in a pilot program where they offer certain wraparound coverage as an “excepted benefit” to part-time employees, retirees, and employees eligible for coverage under a multi-state plan. An excepted benefit is exempt from numerous requirements that apply to group health plans, including the ACA market reforms and certain requirements set forth under HIPAA. The wraparound coverage might, for example, pay for certain expenses in the exchange policy that are not considered essential health benefits, for expanded access to provider networks or other benefits that are not provided in coverage purchased on an ACA mandated exchange.

Under the pilot program, an employer may offer wraparound coverage as an excepted benefit to part-time employees or retirees to supplement health insurance coverage that they purchase an exchange, provided that certain conditions are met. The pilot program also allows an employer to offer wraparound coverage to full-time employees if they purchase a multi-state plan. Without the pilot program, the offer of wraparound coverage would jeopardize these workers’ ability to qualify for a premium subsidy for the purchase of exchange coverage. The program should be especially helpful to employers with large part-time work forces who may find it difficult to offer those employees affordable health coverage, but still wish to supplement the individual coverage that these part-time workers purchase through an exchange.

Employers may offer wraparound coverage as an excepted benefit provided that such coverage is offered no later than December 31, 2017. The employer’s provisional offer of coverage can last for the later of three years from the date that it first offers the coverage or the date on which the last collective bargaining agreement relating to the health plan ends.