As explained in more detail in separate alerts we issued over the past several days, the Supreme Court decided two major cases involving the Affordable Care Act and same-sex marriage. First, as described in a separate alert available here, the Supreme Court held in King v. Burwell that premium subsidies are available in federally administered health exchanges. This is the second time that the Court has ruled against challenges to the ACA, and it means that employers will need to continue to take steps to comply with the ACA’s employer mandate and various other requirements.
Second, as described in another separate alert available here, the Supreme Court issued a historic ruling on same-sex marriage in Obergefell v. Hodges, which requires all states to allow same-sex marriage and also mandates that states recognize the validity of such marriages performed in other states. After Obergefell, employers should review group health and welfare plan eligibility provisions and state tax withholding on health and welfare plan coverage elected by an employee’s same-sex spouse.
SEC Issues Proposed Incentive Compensation Clawback Rule
In another round of rulemaking related to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC proposed a rule that would require certain executive officers to pay back incentive compensation tied to accounting-related metrics in the event of an accounting restatement. Specifically, the proposed rules require publicly-traded companies to adopt clawback policies and publish those policies as an exhibit to their annual report. If there is an accounting restatement, the company’s recovery policy would require an executive to pay back certain excess incentive compensation for the three years before the date that the company is required to prepare the accounting restatement. The rule covers incentive compensation paid to “executive officers,” which the rule defines as the president, principal financial officer, principal accounting officer, certain vice presidents, and other employees who perform policy-making functions.
Health and Welfare Plans
Agencies Finalize ACA’s Summary of Benefits and Coverage (SBC) Rule
The Departments of Treasury, Health and Human Services (HHS) and Labor (DOL) issued final regulationsregarding the Affordable Care Act’s summary of benefits and coverage (SBC) that finalize some of the provisions in the proposed rule from December 2014. Specifically, the final rule clarifies when a plan or issuer is required to provide an SBC. Importantly, for plan sponsors, this rule does not itself impose changes to the form and content of the SBC template. Rather, changes to the SBC template are expected to be released in early 2016. The final rule is effective for group health plans as of September 1, 2015; proposed changes involving the form and content of the SBC template and glossary will not be effective until January 1, 2017.
Contents of the Final Rule
For group health plans, the final SBC rule clarifies that a plan administrator may outsource to another party its responsibility to provide the SBC to plan participants. In doing so, the plan administrator is required to monitor that party’s performance and take steps to correct any noncompliance as soon as practicable. The final rule also includes a safe harbor that allows plan administrators to avoid unnecessary duplication when using multiple insurance products in the same group health plan. Specifically, rather than requiring the plan administrator to provide multiple SBCs, the final rule allows a plan administrator to synthesize all of the insurance products (or self-insured products, as the case may be) into one SBC.
Changes to the Form and Content of the SBC
Perhaps most importantly, the agencies are taking steps to shorten the SBC in response to plan sponsor feedback. The December 2014 proposed regulations were released in tandem with an updated draft SBC template that will shorten the length and limit the amount of required information in the SBC. Public comments on the new template and results from consumer testing are still pending. Accordingly, an updated template will not be finalized until early 2016 and will be effective for plan years beginning on or after January 1, 2017.
These final rules will have limited impact on group health plans. The major changes to the form and content of the SBC template will not be released until 2016; accordingly, plan sponsors will be able to continue to use the 2013 SBC template and rely on the associated guidance until then.
GASB Changes Governmental Entity Accounting Disclosure Rules for Retiree Health Benefits
The General Accountability Standards Board (GASB) recently issued new standards that govern the disclosure of post-employment benefits in financial statements. Specifically, new GASB standards require state and municipal government entities to disclose the costs of these post-employment benefits, such as retiree health insurance benefits, in the financial statements rather than in the footnotes to those statements. The rule is aimed at enhancing disclosure of the growing unfunded liability of these types of post-employment benefits.
Agency Guidance Issued on the Multiemployer Pension Reform Act (MPRA)
In June, the Department of Treasury and the PBGC issued guidance that clarifies how multiemployer pension plans at risk of insolvency can implement the various provisions of the Multiemployer Pension Reform Act of 2014 (MPRA). The MPRA gives multiemployer plan trustees additional tools to address plan insolvency, including reducing benefits for participants (called a “benefit suspension”) or separating out the benefit obligations of certain contributing employers (called a “partition”). The guidance gives further detail as to how trustees can suspend benefits and work with the PBGC to implement a partition of the plan.
As described in our prior alert, the MPRA gives trustees of multiemployer plans in “critical or declining” status the power to amend the plan to suspend benefits for participants and beneficiaries if the trustees determine that, after exhausting all other reasonable measures, the plan remains at high risk of going insolvent. Under the MPRA, trustees cannot implement a benefit suspension before submitting the proposed suspension to affected participants for a vote and getting final approval from Treasury. In addition, the MPRA expanded the circumstances under which the PBGC could order a plan partition, a process under which certain liabilities from the plan are transferred to a separate plan and benefits are guaranteed by the PBGC.
The Department of Treasury guidance comes in three parts: (1) a proposed regulation that describes the conditions that a plan must satisfy in order to suspend benefits, (2) a temporary regulation that details the participant notification process and other items, and (3) IRS Revenue Procedure 2015-34 that includes a model notice to participants and further information on how a plan can apply for a benefit suspension. Effective as of June 19, 2015, trustees may submit an application to the agencies for a benefit suspension but the guidance clarifies that any application will need to be revised to conform with any changes that are included in the final rules. Final rules may not be issued until 2016.
In conjunction with the proposed and temporary rules that Treasury released, the PBGC also issued an interim final rule that clarifies how multiemployer plan trustees may apply to PBGC for a plan partition. Under the MPRA, the PBGC was given expanded authority to order multiemployer plan partitions. Current rules permit the PBGC to partition plans to remove participants of bankrupt contributing employers and guarantee the benefits of those participants in a separate plan. Under the MPRA’s expanded partition rules, provided that the trustees have taken all reasonable measures to avert plan insolvency along with certain other conditions that are spelled out in the interim final rule, the PBGC may order a partition of plans that are in critical and declining status. This allows the PBGC to provide financial support for the benefits of those participants in the separate plan.
Note that this rule did not address the issue of PBGC facilitated plan mergers. PBGC explained that it expects to issue guidance on these types of mergers at some point in the future.
Appointment of Special Master
In its press release summarizing the temporary and proposed rules, Treasury also announced that it appointed Kenneth Feinberg as a special master of the program. Mr. Feinberg, who has overseen the distribution of many large and significant victim compensation funds such as the September 11th Victim Compensation Fund, is tasked with reviewing applications to reduce benefits and will serve as the single point of contact for affected stakeholders