Payment of Patient-Centered Outcomes Research Fee Due by July 31
The Patient Protection and Affordable Care Act (PPACA) imposes fees on plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcome Research Institute (PCORI). The fee, based on the average number of lives covered under the policy or plan, is required to be reported annually on the 2nd quarter Form 720 and to be paid by July 31. The fees apply to policy or plan years ending on or after October 1, 2012, and before October 1, 2019. On June 3, 2013, the Internal Revenue Service (IRS) released an updated Form 720 and companion instructions, available at http://www.irs.gov/pub/irs-pdf/f720.pdf and http://www.irs.gov/pub/irs-pdf/i720.pdf respectively.
2013 Participant Fee Disclosure Deadline Approaching
To comply with the regulations issued under ERISA section 404(a), plan sponsors of calendar year plans were required to provide participants and beneficiaries with an initial disclosure (including specific Plan-Related Information and Investment-Related Information) by August 30, 2012. The regulations require plans to provide these disclosures annually (defined to mean "at least once in any 12-month period"). Accordingly, plan sponsors should provide a 2013 disclosure within 12 months of the date that the initial 2012 disclosure was actually provided.
RETIREMENT PLAN DEVELOPMENTS
U.S. Supreme Court Strikes Down Part of the Defense of Marriage Act
On June 26, 2013, the United States Supreme Court in Windsor v. United States struck down section 3 of the federal Defense of Marriage Act (DOMA), holding that the part of the 1996 law that blocked the federal government from recognizing same-sex marriage was unconstitutional. Section 3 of DOMA defined marriage for all purposes of federal law as limited to "only a legal union between one man and one woman as husband and wife," thus excluding the federal government from recognizing valid same-sex marriages. The Supreme Court struck down section 3 of DOMA as an unconstitutional deprivation of equal protection under the Fifth Amendment. This ruling, which affects over 1,000 statutes and numerous federal regulations, will have a wide-ranging and profound impact on employee benefit plans and their sponsors. The Reinhart Employee Benefits group is prepared to assist our clients in navigating the various potential benefit plan changes resulting from the overturning of DOMA.
IRS Announces Non-Governmental 457(b) Plan Compliance Project
Internal Revenue Code section 457(b) permits tax-exempt entities to sponsor non-qualified deferred compensation plans for select groups of highly compensated employees, managers, directors or officers, known as "457(b) plans." The IRS's Employee Plans Compliance Unit (EPCU) recently announced it will be initiating compliance checks targeting 457(b) plans sponsored by non-governmental tax-exempt entities. A compliance check is a review conducted by the IRS to determine whether an organization is adhering to recordkeeping and information reporting requirements, and whether an organization's activities are consistent with their stated tax-exempt purpose. The EPCU will initiate a compliance check by sending a compliance letter and questionnaire that will solicit information about the characteristics and features of the 457(b) plan, and will request copies of certain plan provisions and copies of the top hat exemption filed with the Department of Labor (DOL). In instances where a 457(b) plan is not established or operated in accordance with Code section 457(b), EPCU will inform the sponsor of what actions are needed, which may include an audit of the plan or correction under the Voluntary Correction Program.
EPCU plans to send compliance check letters and questionnaires to approximately 200 organizations in IRS fiscal year 2013 (ending September 30, 2013) and another 200 in fiscal year 2014 (ending September 30, 2014) as part of this review. The IRS notes that failure to respond could result in an audit of the 457(b) plan or organization.
HEALTH AND WELFARE PLAN DEVELOPMENTS
IRS Guidance Holds Patient-Centered Outcome Research Institute Fee Deductible
On May 31, 2013, the Office of Chief Counsel for the IRS released a memorandum holding that fees paid by plan sponsors of certain self-insured health plans to fund the PCORI are ordinary and necessary business expenses and are thus deductible. PPACA established the private, nonprofit PCORI for the stated purpose of assisting the public in making informed health decisions. PCORI is to be financed, in part, by fees paid by issuers of specified health insurance policies and sponsors of applicable self-health plans, paid yearly (see fee deadline notice discussed above in the "Select Compliance Deadlines and Reminders" section). While some taxes imposed under PPACA (such as the employer shared responsibility tax and the excise tax on high cost employer-sponsored health coverage) are nondeductible, the memorandum concludes that the PCORI fee required to be paid by selfinsured health plans is an "ordinary and necessary business expense paid or incurred in carrying on a trade or business, and, therefore, will be deducible under the Internal Revenue Code."
HHS Releases Final SHOP Regulations; CMS Releases Draft SHOP Application for Employers and Employees
On June 4, 2013, the Department of Health and Human Services (HHS) released a final rule implementing provisions of PPACA related to the Small Business Health Options Program (SHOP). Specifically, the final rule amends existing regulations regarding triggering events and special enrollment periods for qualified employees and their dependents and implements a transitional policy regarding employees' choice of qualified health plans (QHPs) in the SHOP. The proposed rule, which we discussed in our April 1, 2013 e-alert, was largely adopted in the final regulations. The full text of the rule is available at http://www.gpo.gov/fdsys/pkg/FR-2013-06-04/pdf/2013-13149.pdf. In addition, the Centers for Medicare & Medicaid Services (CMS) released a draft employer application (available here) and employee application (available here) for those seeking to determine their eligibility for SHOP health coverage.
Final Rule Released on Minimum Value and Affordability
On June 26, 2013, CMS and HHS issued final rules setting forth standards and a process under which the health care exchanges will conduct eligibility determinations for, and grant exemptions from, the individual shared responsibility payment. PPACA specifies certain categories of individuals who are eligible to receive exemptions from the individual responsibility payments under PPACA, such as members of recognized religious sects whose tenets conflict with acceptance of the benefits of private or public insurance. While guidance is not yet clear in this area, it's possible that employees exempt from individual shared responsibility payments as a result of these exemptions will not trigger the employer share responsibility penalty.
In addition, the rule provides standards for determining whether certain other types of health insurance coverage not automatically designated as minimum essential coverage will be considered to constitute minimum essential coverage and provides procedures to follow for plan sponsors offering such plans to be identified as offering minimum essential coverage. Individuals with coverage that qualifies as minimum essential coverage in accordance with this rule will be deemed to have minimum essential coverage for purposes of the individual shared responsibility provision. For the most part, this final rule incorporates the provisions of the proposed rule. The complete rule can be found here.
Extension Issued to Temporary Enforcement Safe Harbor Relating to Religious Employer Contraceptive Coverage Accommodation
CMS and the Center for Consumer Information and Insurance Oversight (CCIIO) previously issued (February 2012) a temporary enforcement safe harbor with respect to nongrandfathered health plans maintained by certain nonprofit organizations with religious objections to contraceptive coverage (and any health insurance coverage offered in connection with such plans). Under PPACA, nongrandfathered health plans are required to offer in-network contraceptive services to women free of charge. Religious employers that met a narrow definition set forth in the final regulations issued on February 10, 2012 are exempt from this requirement.
The CCIIO subsequently released technical guidance to add a temporary one-year enforcement safe harbor for nonexempted group health plans maintained by nonprofit organizations whose plans have consistently not covered contraceptive services for religious reasons at any point from February 10, 2012 onward. Under the original terms in the prior guidance, this temporary enforcement safe harbor would remain in effect until the first plan year beginning on or after August 1, 2013. CMS issued new guidance on June 28, 2013 extending the safe harbor to encompass plan years beginning on or after August 1, 2013 and before January 1, 2014.
Contemporaneously with the release of the CMS guidance, HHS and the DOL also issued a self-certification form to be executed by organizations seeking to be treated as an eligible organization for purposes of an accommodation under the 2012 final regulations. This selfcertification form is applicable in conjunction with the accommodations under the 2012 final regulations (e.g., for plan years beginning on or after January 1, 2014) after the expiration of the temporary enforcement safe harbor.
IRS Issues Individual Mandate Transition Relief for Fiscal Year Plans
On June 26, 2013, the IRS issued two notices providing additional guidance relating to premium tax credits and the individual mandate. While these notices relate to individuals rather than employers, the notices provide some guidance for employers as they make decisions related to the shared responsibility requirement.
IRS Notice 2013-41—Eligibility for Minimum Essential Coverage
IRS Notice 2013-41 provides guidance on when an individual is eligible for minimum essential coverage for purposes of premium tax credits. Generally, individuals eligible for minimum essential coverage are not eligible for premium tax credits. Previous guidance stated that individuals eligible for Medicare or other government sponsored coverage (other than veteran's programs) were considered eligible even if they did not enroll in the coverage. Notice 2013-41 further clarifies that individuals eligible for Medicare or Medicaid due to an illness or disability are not considered eligible for coverage and, therefore, eligible 4 for premium tax credits, until they receive a favorable determination of eligibility for Medicare or Medicaid. Notice 2013-41 also clarifies when individuals eligible for certain government sponsored coverage are considered eligible for minimum essential coverage. Individuals who are eligible for the following government programs and who must pay premiums for these programs are not considered eligible for the coverage unless they enroll:
- Medicare Part A with required premiums. (Only individuals who have not paid Medicare taxes for at least 10 years have to pay premiums. Most working individuals will not have to pay any Medicare Part A premiums (because employers withhold FICA taxes) but some self-employed individuals may have to pay Medicare Part A premiums if they failed to pay FICA taxes on their taxes);
- TRICARE (reserve select, young adult, retired reserve, and the continued health care program);
- Student health plans;
- State high risk pools.
REINHART COMMENT: Some employers have been taking Medicare and other government coverage eligibility into account when determining exposure to shared responsibility penalties based on the understanding that employees eligible for such programs would not be eligible for a premium tax credit, thereby triggering no penalty. This guidance complicates that determination as employers may now have to determine the type of government-sponsored coverage for which the employee may be eligible or, alternatively, treat them as not eligible for government-sponsored coverage.
IRS Notice 2013-42—Transitional Relief for the Individual Mandate
IRS Notice 2013-42 provides transition relief from the individual mandate for individuals eligible for coverage under fiscal year plans. Employees and their dependents who are eligible to enroll in fiscal year plans that begin in 2013 and end in 2014 (the "2013-2014 plan year") will not be subject to any individual mandate penalty for the months between January 2014 (when the individual mandate becomes effective) and the month in which the 2013-2014 plan year ends.
REINHART COMMENT: As you may recall, the proposed regulations for the employer shared responsibility rule provided transition relief for employers with fiscal year plans. Such employers will not be subject to any shared responsibility payment until the first plan year that begins in 2014 for employees who were eligible for coverage as of December 27, 2012 and any newly eligible employees if the employer previously covered a specified percentage of employees in a fiscal year plan. Accordingly, employers can choose to not offer coverage to employees working 30 or more hours per week until the first plan year beginning in 2014. However, if an employer relies on the transition rule, any employee for whom the employer refused coverage could subject the employer to an individual mandate penalty. Notice 2013- 42 provides relief for employees who would be eligible to enroll in coverage for the 2013- 2014 plan year but who choose not to enroll. Notice 2013-42 does not, however, provide relief for those employees who may work 30 or more hours per week in 2014 but who are not eligible for coverage. Thus, as employers determine whether to rely on the fiscal year transition relief, they may need to consider the impact of the individual mandate on employees who will not be eligible for coverage.